PER MAJMUDAR, J. :, J. ( 1 ) THE Income-tax Appellate Tribunal has referred questions for our opinion arising out of the judgment dated 31-3-1977. Some of the questions are referred at the instance of the Revenue and the remaining are referred at the instance of the assessee. The referred questions read as under: at the instance of the Revenue: (1) Whether on the facts and in the circumstances of the case, the tribunal was right in holding that the transfer of development rebate reserve to the general reserve would not amount to the utilisation of the development rebate reserve for any of the prohibited purposes under sub-section (3) of Section 34 of the Act. (2) Whether the tribunal was right in law in holding that the assessee was entitled to development rebate of Rs. 5,61,443/- in the year under consideration ? (3) Whether the Income-tax Appellate tribunal was justified in law in allowing the assessee expenditure of Rs. 27,000/- being contribution to superannuation fund and Rs. 12,000/- being contribution to provident fund in respect of the directors of the company? at the instant of the assessee: (4) Whether on the facts and in the circumstances of the case, the tribunal was justified in confirming the disallowance of service line charges of rs. 36,918? (5) Whether on the facts and in the circumstances of the case, the tribunal was justified in holding that on acquisition of assets of the value of more than the development rebate reserve, without making any entry in development rebate reserve account, it could hot be held that the same was utilisation of development rebate reserve for the said purpose? (6) Whether on the facts and in the circumstances of the case, the tribunal was justified in law in holding that the assessee is not entitled to weighted deduction under Section 35b of the Act on expenditure of Rs. 1,15,319?" out of these six questions, question no. 6 which is referred at the instance of the assessee was not pressed before us at the time of final hearing of this application by the learned Advocate of the assessee, and hence this judgment will be confined to the remaining five questions only. The sixth question will stand disposed of as not answered on account of being not pressed. 6 which is referred at the instance of the assessee was not pressed before us at the time of final hearing of this application by the learned Advocate of the assessee, and hence this judgment will be confined to the remaining five questions only. The sixth question will stand disposed of as not answered on account of being not pressed. ( 2 ) IN order to appreciate the nature of controversy underlying these questions, a few introductory facts become necessary to be noticed at the outset. Introductory Facts: ( 3 ) THE assessment year is 1971-72. The assessee is a limited company. At the relevant time, it had under its control different divisions, viz. Sarabhai chemicals, Swastik Oil Mills, Sarabhai common Services, Sarabhai Glass, sarabhai Machineries. The assessee company was previously known as karamchand Premchand Private Limited but subsequently it underwent a change and it was known as Shahibag enterpreneurs Private Limited and that is why the name of the assessee company was permitted to be altered in the appellate proceedings before the tribunal from Karamchand Premchand Private limited to Shahibag Enterpreneurs private Limited. ( 4 ) THE activities of the assessee were at Baroda and Bombay with head office being at Ahmedabad. In the accounting year of the assessee which was from 1-4-1970 to 31-3-1971 corresponding to assessment year 1971-72, the assessee increaed a development rebate reserve of rs. 4,42,975/- with a view to enabling the assessee to have development rebate of Rs. 5,61,443/ -. After close of the accounting year in the next accounting year ending on 31-3-1972, the assessee transferred this development rebate reserve to the general reserve account. It is the case of the assessee that this was done as development rebate reserve had got exhausted by being utilised in purchase of new plant and machinery which had far larger value as compared to development rebate reserve. In that year, the opening balance in general reserve account was Rs. 412 lacs, and in addition to the transfer of the development rebate reserve, a further sum of Rs. 126 lacs was transferred from profit and loss account bringing the total roughly to Rs. 542 lacs. Out of this sum, the assessee declared dividend of Rs. 29,000/ -. The ITO disallowed the claim of development rebate as according to him, once development rebate reserve was transferred to general reserve, when dividend of Rs. 126 lacs was transferred from profit and loss account bringing the total roughly to Rs. 542 lacs. Out of this sum, the assessee declared dividend of Rs. 29,000/ -. The ITO disallowed the claim of development rebate as according to him, once development rebate reserve was transferred to general reserve, when dividend of Rs. 29,000/- was paid out of the same, it could be said that the amount in development rebate reserve was utilised for paying dividend which was prohibited use for such reserve and consequently, according to the ITO, the assessee was not entitled to deduction of the said rebate as per Section 34 (3) (a) of the Income-tax Act, 1961 as applicable at the relevant lime. The ITO held that the development rebate reserve should be distinct and separate reserve which can be utilised for authorised purposes only and if it was utilised for one of the prohibited users during the period of eight years, the revenue was competent to withdraw the development rebate under section 155. As this had come to the notice of the ITO before the assessment for the relevant year was finalised, following the decision of this Court in cit v. Sayaji Mills Ltd. , 94 ITR 26, the ito called upon the assessee to show case why rebate claimed should not be allowed and ultimately disallowed the same. ( 5 ) THE assessee carried the matrer in appeal before the appellate assistant commissioner. The appellate assistant commissioner came to the conclusion, agreeing with the assessee, that it was entitled to get benefit of development rebate as the assessee had fulfilled all necessary conditions for allowance of development rebate. He noted the fact that development rebate reserve was transferred to the general reserve, but according to him, as they were funds available to the assessee for distribution of dividend from the profits earned, and even otherwise, from the large balance in general reserve account, distribution of dividend cannot be attributed to the amount mentioned in the development rebate reserve and, therefore, in the view of the appellate assistant commissioner, the assessee was not disabled from claiming the said rebate. ( 6 ) THE revenue carried the matter in second appeal before the tribunal. The tribunal agreeing with the appellate assistant commissioner, dismissed the appeal of the revenue. ( 7 ) XX xx xx ( 8 ) WE shall deal with these questions lopicwise. ( 6 ) THE revenue carried the matter in second appeal before the tribunal. The tribunal agreeing with the appellate assistant commissioner, dismissed the appeal of the revenue. ( 7 ) XX xx xx ( 8 ) WE shall deal with these questions lopicwise. Questions Nos. 1, 2 and 5: ( 9 ) THESE questions deal with the allowance of development rebate. . . . ( 10 ) XXX xxx xxx ( 11 ) XXX xxx xxx ( 12 ) WE may now proceed to the consideration of these questions. As noted earlier, all these questions pertain to the same topic of grant of development rebate. It would, therefore, be profitable to have a look at the relevant statutory provisions on the point. Section 33 of the Act deals with development rebate. Section 33 (1) with which we are concerned reads as under:"in respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of Section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or if, the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b ). "it becomes obvious that the provision has to be read with Section 34 as it is made expressly subject to the provision of Section 34. The assessee who claims development rebate on account of installation of new plant or machinery during the relevant year, has satisfied the requirements of both Section 33 (1) (a) as well as Section 34. When we turn to section 34, the relevant provisions thereof on this aspect is as under:"34 (3) (A ). The assessee who claims development rebate on account of installation of new plant or machinery during the relevant year, has satisfied the requirements of both Section 33 (1) (a) as well as Section 34. When we turn to section 34, the relevant provisions thereof on this aspect is as under:"34 (3) (A ). The deduction referred to in Section 33 shall not be allowed unless an amount equal to seventy-five per cent of the development rebate to be actually allowed is debited to the profit and loss account of any previous year in respect of which the deduction is to be allowed under sub-section (2) of that section or any earlier previous year (being a previous year not earlier than the year in which the ship was acquired or the machinery or plant was installed or the ship, machinery or plant was first put to use) and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking other than: (i) for distribution by way of dividend or profits; or (ii) for remittance outside India as profits or for the creation of any asset outside India. . . . "a conjoint reading of these provisions projects the following picture: (i) Before an assessee can claim development rebate on account of installation of new machinery or plant, he must show that he has installed new machinery or plant owned by him and it is wholly used for the purpose of his business. (ii) He must debit the amount equal to 75% of development rebate to be actually allowed on such machinery or plant to the Profit and Loss Account of the relevant previous year. (iii) He must credit the said amount to a separate reserve account, i. e. , development rebate reserve account; and (iv) The amount earmarked for such reserve account has to be utilised by the assessee during the period of eight years for the purpose of business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. Once the aforesaid conditions are satisfied, the claim for development rebate would get fructified. We may now turn to Section 155 (5) which deals with right of the revenue to recall wrongly allowed development rebate. Once the aforesaid conditions are satisfied, the claim for development rebate would get fructified. We may now turn to Section 155 (5) which deals with right of the revenue to recall wrongly allowed development rebate. It reads as under:" (5) Where an allowance by way of development rebate has been made wholly or partly to assessee in respect of a ship, machinery or plant installed after the 31st day of December 1957, in any assessment year under Section 33 or under the corresponding provisions of the Indian i income-tax Act, 1922 (II of 1922), and | subsequently (i) At any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or land is sold or otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a central, State or Provincial Act or a government Company as defined in section 617 of The Companies Act, 1956 (I of 1956) or in connection with any amalgation or succession referred to in sub-section (3) or sub-section (4) of section 33, or (ii) at any time before the expiry of the eight years referred to in sub-section (3) of Section 34, the assessee utilises the amount credited to the reserve account under clause (a) of that sub-section (a) for distribution by way of dividends or profits, or (b) for remittance outside India as profits or for the creation of any asset outside India, or (c) for any other purpose which is not a purpose of the business of the undertaking, the development rebate originally allowed shall be deemed to have been wrongly allowed and the assessing officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the sale or transfer took place or the money was so utilised. "a conjoint reading of these provisions makes it clear that once the assessee satisfies the positive conditions for earning development rebate as laid down in Sections 33 and 34 (3) (a) by installing the machinery in question and by utilising the same for his own business purpose and by creating necessary development rebate reserve by debiting the amount to profit and loss account, the assessee would become entitled to claim development rebate and if deeming provisions of Section 155 (5) are to be brought in force, it will have to be established by the revenue that development rebate reserve amount was spent by the assessee during the period of eight years after creation of reserve for any prohibited purpose as eunmerated in sub-clauses (a), (b) and (c) of clause (ii) of sub-section (5) of Section 155 of the Act. It is of course true, as held by the division bench of this Court in 94 itr 26 (supra), when the assessment of the earlier year is not finalised and in the meantime, ITD comes to know about prohibited nature of use of development rebate reserve by the assessee in the subsequent years, than the ITO can as well disallow development rebate in the relevant year while framing the assessment, instead of undergoing a mere formality of first granting development rebate and then reddling it under Section 155 (5 ). In fact, the learned Advocates for the assessee did not dispute the said right of the revenue. Now, so far as the facts of the present case are concerned, it is not in dispute that the assessee during the relevant year, had debited profit and loss account and had created development rebate reserve as required under Section 34 (3) (a) of the Act. It also cannot be seriously disputed that the assessee during the relevant previous year had installed additional fixed assets by way of plant and machinery at huge cost going much more beyond the amount reflected by development rebate reserve. Thus, the main conditions for earning development rebate established in the present case. However the grievance of the Revenue appears only to the effect that having created development rebate reserve, it was not allowed to continue for eight years and it was carried to the general reserve. Thus, the main conditions for earning development rebate established in the present case. However the grievance of the Revenue appears only to the effect that having created development rebate reserve, it was not allowed to continue for eight years and it was carried to the general reserve. Now, so far as this grievance is concerned, it becomes obvious that nowhere in Section 34, it has been laid down as a separate condition that development rebate reserve created by debiting profit and loss account should be kept intact by the assessee for eight years. On the contrary, Section 34 (3) (a) shows that the assessee is given liberty and latitude to utilise the amount standing in the said reserve account at any time during the period of eight years next for any of the permissible purposes of business. It does not mean that the amount cannot be utilised within a period of eight years at any time. All that has to be shown is that the credited amount should be utilised by the assessee for the purpose of his business and the said utilisation was not for any prohibited purpose like distribution by way of dividends or distribution of profit. The itos grievance was that because the said reserve account was closed and was credited to general reserve account from which ultimately Rs. 29,000/- were paid as dividends, it can be said that the development rebate reserve account was utilised for distribution by way of dividends. But before such conclusion can be reached, it has to be shown on evidence on record that it was that balance amount which was actually utilised by the assessee for distribution by way of dividends. If this is not established, no case would survive for the Revenue to go under section 155 (5) and to grant of development rebate to the assessee once all other conditions, precedent for earning such rebate, were established by the assessee. On the Scheme of sections as "stands, it is not possible to agree with the extreme contention of the Revenue that the development rebate reserve account should be kept intact for eight years. On the Scheme of sections as "stands, it is not possible to agree with the extreme contention of the Revenue that the development rebate reserve account should be kept intact for eight years. In fact, in fairness to the learned advocate of the Revenue, it must be stated that he submitted that even he would not ascribe to such extreme position, but his contention was that in order to earn development rebate, the assessee must show that he utilised his reserve account amount for permissible business purposes and entries in the account maintained by him must clearly indicate this fact and in the absence of such entries, it would be impossible for the revenue to trace movement of this fund and this would disentitle the assessee from claiming development rebate. Even this contention of Mr. Shelat does not logically flow from the aforesaid statutory scheme where, it is nowhere indicated by the legislature that reserve fund account created must either be kept for eight years intact or that such reserve account balance cannot be carried after its purpose is exhausted to general reserve account or any particular entry should be posted in such account after it is once created. Postings of entries as contempleted by the legislature by enacting Section 34 (3) (a) are only of two types: (i) debiting to profit and loss account of the amount equivalent of 75% of the development rebate to be actually allowed to the assessee and (ii) crediting this amount to reserve account. Once these entires are posted, the legislative mandate laying down conditions precedent for earning development rebate would get satisfied. Further posting of entries by way of condition precedent is not contemplated by the said provision and, therefore, treatment to be meted out to such reserve account created as per the statutory requirements would abide by general accountancy practice to which we will advert hereinafter, but before we do so, we may refer to the factual position which emerges on record. ( 13 ) MR. Patel for the assessee vehemently contended that in the present case, there ; was overwhelming evidence on record to show that the amount of Rs 29,000/- by way of dividend distributed to the preference shareholders was a very meagre amount. For paying the same, no help of balance of development rebate reserve was at all required. ( 13 ) MR. Patel for the assessee vehemently contended that in the present case, there ; was overwhelming evidence on record to show that the amount of Rs 29,000/- by way of dividend distributed to the preference shareholders was a very meagre amount. For paying the same, no help of balance of development rebate reserve was at all required. He submitted that as pointed out to the ITO by the assessee, within two days of the notice received by him from the ITO, an amount of Rs. 4,42,975/- was transferred from the statutory development reserve account to the general reserve in the relevant year 1971-72; while the capital expenditure in fixed assets undertaken by the assessee during that time was Rs. 1,94,38,790. In that year, profit after tax was Rs. 40,10,651/ -. Thus, it was easy to visualise that from the available profit after tax, a meagre amount of Rs. 29,000/- by way of dividend was not difficult to be distributed. No need existed for distributing this dividend from the amount transferred from the statutory development rebate reserve account, it was also contended that opening balance of general reserve account was also quite substantial even before this amount was transferred from the development rebate reserve and, therefore, the assumption on the part of ITO that the amount of Rs. 4,42,975/- could not have been utilised for paying dividend was totally misconceived. He submitted that balance sheets of last number of years were produced before the ITO and they showed that opening balance as on 31-3-1970 in the general reserve was Rs. 4,12,69,856/- while as on 31-3-1971, the opening balance was rs. 4,12,69,878/- and, therefore, there was no need to fall back upon the transferred amount from the statutory development rebate reserve of Rs. 4,42,975/- for paying rs. 29,000/- by way of dividend. Mr. Patel, therefore, submitted that in the facts of the present case, there was no question of utilisation of the development rebate reserve for distributing dividends as wrongly assumed by the ITO and once it is so no question would survive for holding that the assessee was not entitled to claim development rebate. We find considerable force in these submissions of Mr. Patel. We find considerable force in these submissions of Mr. Patel. He also invited our attention in this connection to the following facts and circumstances emerging on the record indicating the factum of utilisation of development rebate reserve amount that is its equivalant amount and even more, for installation of fixed assets :- (i) In the reply to the notice issued by the ITO, it was clearly pointed out that the current assets appearing in the balance sheet as on 31-3-1970 showed that the statutory development rebate had been utilised for capital expenditure and converted into fixed assets which are of a permanent nature and are utilised for business. That the funds utilised each year by the company in the investment of fixed assets were considerably more than the funds represented by statutory development rebate reserve of the respective previous year. For example, during the accounting year 1970-71, corresponding to A. Y. 19171-72, funds utilised in fixed assets amounted to Rs. 98,78,006/- and the funds representing the statutory development rebate reserve created in the accounting year 1969-70 and brought forward in 1970-71 amounted to Rs. 4,50,118/- that is to say, funds utilised in fixed assets in 1970-71 included the funds represented by statutory development rebate reserve created in 1969 70 and in fact, were far in excess thereof. Thus, the entire development rebate reserve account fund was exhausted by utilising its equivalent and even more for capital expenditure. This aspect of the matter was not challenged by the revenue at any stage. (ii) The fixed assets purchased were reflected by the relevant entries in the books of account, by debiting fixed asset account and by making corresponding entries in the bank account and/or suppliers account in case of cash transaction or credit transactions, as the case may be. (iii) Machinery account and the corresponding bank account entries clearly reflected this position. (iv) Balance-sheet for the relevant year showed fixed assets and additions to the fixed asset account during the relevant year and the amount spent for the same. (v) Depreciation charge on additional machinery also established faclum of purchase of new machinery by way of fixed capital asset during the relevant year. (vi) There was overwhelming evidence on record to show that development rebate was claimed in subsequent years for newly installed machinery and it was granted. (vii) ITO himself had granted for the subsequent year depreciation of these assets. (vi) There was overwhelming evidence on record to show that development rebate was claimed in subsequent years for newly installed machinery and it was granted. (vii) ITO himself had granted for the subsequent year depreciation of these assets. (viii) Not only that, but the Board of directors had passed a resolution dated 7-9-1972 acknowledging the fact that assets were purchased and installed during the relevant years and the entire development rebate reserve account was exahusted and consequently, the amount had to be transferred to the general reserve account as no longer required for fulfilling the statutory charge of utilising the same for business purpose as required by the relevant provisions. (ix) The resolution of the Board of directors was actually implemented and accordingly transfer entries were effected transferring the amount from the development rebate reserve account to the general reserve account. ( 14 ) RELYING on these salient features which have emerged on record and which cannot be seriously disputed. Mr. Patel submitted that on the facts of the present case, it can easily be visualised that balance standing in the development rebate reserve account to the tune of Rs. 4,42,975/- which was transferred to the general reserve account was fully utilised to the extent of its money equivalent by the assessee during the relevant year for installing new machinery and, therefore, the statutory charge imposed by the legislature while enacting Section 34 (3) (a) had got fully fructified and implemented and in fact, development rebate reserve itself got exhausted and its purpose was fulfilled. As the equivalent amount and even more had not converted into fixed assets which were installed, there would remain no occasion for the revenue to even contend that this balance amount would have been utilised for distribution of dividend as that occassion could not arise when the very fund by an equivalent amount and more was already converted into fixed assets. ( 15 ) WE find considerable force in the aforesaid contentions of Mr. Patel. On the aforesaid salient features of the case, no other view is possible. It cannot be urged by the revenue that despite these established facts and for which no serious objection could be raised, it can still be submitted that the amount of development rebate reserve would have been utilised by the assessee for distributing dividends of Rs. 29,000/ -. In this connection, Mr. It cannot be urged by the revenue that despite these established facts and for which no serious objection could be raised, it can still be submitted that the amount of development rebate reserve would have been utilised by the assessee for distributing dividends of Rs. 29,000/ -. In this connection, Mr. Patel took us to Section 205 of the companies Act which lays down as under:"205 (1 ). No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or cut out of both or out of moneys provided by the Central government or a Stste Government for the payment of dividend in pursuance of a guarantee given by that government. "it becomes obvious that no dividend can be declared or paid by any company in any financial year except out of profits of the company. Consequently, if the facts of the case show that during the relevant year, there was substantial profit earned by the company as shown from the profit and loss account and as compared to the profits earned, distributed dividend was very small amount, it can easily be visualised that dividend must have been paid from the profits as enjoined by the aforesaid provision. 15a. Our attention was invited by the learned Counsel for the assessee to certain well established practices in Advance accountancy. Firstly, he took us to advance Accounting by Jamshed R. Batliboi, twenty-fifth edition, 1970. Discussion by learned author at paras 3 and 4 regarding specimen transactions and how entries are to be effected was relied upon. It was to the following effect:"the following illustrative transactions will serve to emphasise the twofold effect of each business dealing and also as to how the double effect of every business transaction is reflected by one account being debited and another account being credited. 1. Bought goods worth Rs. 500 for cash from X: this is a cash purchase and the accounts concerned are both asset accounts the goods account and the cash account. 1. Bought goods worth Rs. 500 for cash from X: this is a cash purchase and the accounts concerned are both asset accounts the goods account and the cash account. As goods have come in goods account will have to be debited and as cash has gone out, cash account will have to be credited. There is no need to open Xs account inasmuch as X has been paid cash at the lime of purchase and is not there/ore our creditor. 3. Bought goods from B on credit for rs. 600: this is a credit purchase and the two accounts affected are the goods account (asset account) and Bs account (personal account ). As goods have come in, goods account will have to be debited and since b has become our creditor, his account will have to be credited. Thus, the twofold effect of this transaction is brought into record. "it was submitted that if capital assets are purchased by the assessee on cash basis, assets account will be debited and cash account will have to be credited and if it is credit purchase, two accounts effected will be goods account (asset account) and sellers personal account and in no case, there will be any question of making entries in any statutory, fictitious, development rebate reserve account as such account has to be maintained in accordance with the relevant provisions of the Act and it has nothing to do with the accounting practice. We were then taken to the discussion of the learned author at page 550 of the aforesaid book in connection with profit and loss appropriation account where the learned author has observed thus: "the net profit made by a company as appearing from its profit and loss account is transferred to the credit of another account styled profit and loss appropriation account. The object of this account is to show the amount of the net profit available for disposal and how the same has been appropriated. Any balance of profit left from the previous year will appear as the first item on the credit side of this account. On the debit side of this account will appear all such items as represent allocation or appropriations of net profits, such as dividends declared, amounts set aside for debenture redemption fund, reserve fund, dividend equalisation fund, etc. Any balance of profit left from the previous year will appear as the first item on the credit side of this account. On the debit side of this account will appear all such items as represent allocation or appropriations of net profits, such as dividends declared, amounts set aside for debenture redemption fund, reserve fund, dividend equalisation fund, etc. Provisions made in respect of income-tax payable, as also any percentage of net profits payable to the general manager, should be charged to this account. This account must always show a credit balance representing profits not disposed off and will appear on the liabilities side of the balance-sheet. " we were then taken to the discussion on reserve and reserve fund at page 725 of the said book. It has been observed therein as under:"the distinction between a reserve fund and a reserve or a reserve account needs to be clearly drawn, as these terms are indiscriminately applied to items which are essentially different, thus giving rise to considerable confusion on the part of the laymen. A reserve or a reserve account is a provision for some known or expected loss, such as reserve for bad debts, reserve for discount, reserve for repairs and renewals, reserve for disputed claims, etc. It is not, therefore, a surplus it is not represented by assets and it is not available for dividends. While a reserve fund is formed as a result of appropriating profits, a reserve account is created by making a charge against revenue before true profits can be ascertained. Whereas it is impossible to create a reserve fund except out of divisible profits, a reserve may be provided even during periods when a loss has been sustained. If these reserves were designated provisions and were always shown by way of deduction from the particular assets the loss on which they are intended to cover, no one could then mistake a provision for debt or a provision for renewals for a reserve fund. "the learned Advocate for the assessee then took us to certain observations by william Pickles in his Textbook on accountancy, third edition published by the English Language Book Society and sir Isaac Pitman and Sons Ltd. London. At page 184 of the said textbook are found observations about reserves and provisions. "the learned Advocate for the assessee then took us to certain observations by william Pickles in his Textbook on accountancy, third edition published by the English Language Book Society and sir Isaac Pitman and Sons Ltd. London. At page 184 of the said textbook are found observations about reserves and provisions. So far as reserve are concerned, the following observations are worthnoting:"as a preliminary to closer study, reserves and provisions may be defined as follows: (1) Reserve amounts set aside out of profits and other surpluses which are not designed to meet any liability, contingency, commitment or diminution in value of assets known to exist at the date of the balance-sheet. (2) Provisions amounts set aside out of profits and other surpluses to provide for (a) depreciation, renewals or diminution in value of assets, or (b) any known liability of which the amount cannot be determined with substantial accurancy. It follows therefore that (1) Any amount set aside for the purposes described in (2) (a) and (b) (above) in excess of estimated requirements must be regarded as a reserve, and (2) Sums set aside to meet known liabilities of which the amount can he determined with substantial accurancy do not fall within the definition of a provision and should therefore be described as accruals or accrued liabilities. Reserves are in effect part of the undistributed profits of the business and, therefore, part of the proprietorship whereas provisions and accruals are a diminution of proprietorship in the form of a liability or diminution of an asset. The former are broadly appropriations of, the latter charges against profits. "so far as further observations regarding reserves are concerned, they are found at pages 185 and 186 of the said book. The learned Author has observed in this connection as under: "reserves are with special reference to limited companies, divided into two main classes, depending upon whether or not they may be regarded as arising from normal profits or gains available for distribution through the profit and loss account as dividends. They are: (1) Capital reserves. These are not in limited company accounting, normally regarded as available for distribution as dividend; such reserves arise from (a) Sale of fixed assets at a profit (in practice, the surplus over book value is often taken to capital reserve, although strictly the capital profit is only the assets of sale proceeds over cost ). They are: (1) Capital reserves. These are not in limited company accounting, normally regarded as available for distribution as dividend; such reserves arise from (a) Sale of fixed assets at a profit (in practice, the surplus over book value is often taken to capital reserve, although strictly the capital profit is only the assets of sale proceeds over cost ). (b) Profit of a company accrued before incorporation or purchase. (c) Premium on shares or debentures. (d) Profit on redemption of debentures. (e) Profit on forfeiture of shares. (f) Surplus on revaluation of assets and liabilities. (g) Capital redemption reserve fund. These matters are dealt with in more detail in chapter XXIII but it may be stated broadly that in certain circumstances some of these profits may be considered as revenue but the better practice is to regard them as capital; others are subject to special restrictions and treatment in accordance with the provisions of the Companies Act, 1948. (2) Revenue reservation. These are normally regarded as available for distribution through the profit and loss account but are themselves divided to two classes those immediately and those not immediately so available. (i) General reserve. This reserve is created by setting aside profits in order to strengthen the general financial position of the business. Such profits, however, remain available for distribution and for this reason it is often described as a free reserve. In this group should be included any undistributed balance of the profit and loss account (by deduction if a debit balance ). (ii) Specific reserve. Under this heading are included amounts set aside out of profits for a specific purpose or because of a specific obligation, which, though still revenue, are not immediately available for distribution. The best example of this arises in the accounts of limited companies when a company engages to set on one side a portion of profits until debentures which for this purpose may be considered the equivalent of a loan are repaid throughout the whole period of liability in respect of the loan, the reserve set aside is part of the undistributed profits and upon repayment of the loan may be transferred back to the profit and loss account or to the general reserve. " relying on the observations on specific reserve, it was submitted that once the purpose of reserve is exhausted, the balance of reserve account has to be transferred to the profit and loss account or to the general reserve account and that is precisely what is done by the assessee. ( 16 ) IN connection with book-keeping entries to be effected while creating specific reserve for debiting profit and loss appropriation account, the following well established procedure for effecting book-keeping entries was relied upon. This procedure is found at page 846 of the aforesaid book: the book-keeping entries are at the date of the creation of fund (1) Debit profit and loss With the appropriation yearly sum account, credit to be set sinking fund aside, account. (2) Debit sinking fund With the investment account yearly sum credit cash. invested. This process will be repeated each year. In addition, the annual interest will have to be dealt with thus: (1) Debit cash. On receipt of interest. (2) Debit sinking On investment of fund credit interest. cash. Investment account. Upon realisation and redemption the entries are: (1) Debit cash On sale of credit sinking investment fund investment account. (2) Debit On redemption debentures of debentures, account, credit cash. (3) Debit sinking With part of fund account. sinking fund credit Reserve. no longer required. Taking a clue from the aforesaid observations, it was submitted that even for sinking fund account, when sinking fund is realised, it is not necessary to continue it and in that eventuality, sinking fund account is to be debited and reserve are to be credited. ( 17 ) COMING to the development rebate reserve for allowance as contemplated under the I. T. Act, discussion of Vidya sagar Aggarwal in Guide to Company balance-Sheet and Profit and Loss account, published in 1986 by Hind Law house at Pune at pages 162 and 163 was relied upon. It has been observed therein:"after the expiry of eight years or on the acquisition of new assets the amount of development rebate reserve will be available for distribution as dividend and will be transferred to general reserve account. The amount of development rebate is a charge to the profit and loss account. It has been observed therein:"after the expiry of eight years or on the acquisition of new assets the amount of development rebate reserve will be available for distribution as dividend and will be transferred to general reserve account. The amount of development rebate is a charge to the profit and loss account. "it was submitted that till expiry of eight years or till acquisition of new assets, development rebate reserve can be treated to be a charged reserve which would become free moment the purpose of its is established. In this connection, observations of the learned Author on "free reserves" at page 184 were pressed in service:"free reserve includes balance in the share premium account, capital and debenture redemption reserve and such reserve that remains after redemption of preference shares or debentures. Free reserve does not include the balance in any reserve created for repayment, if any, of future liability or depreciation in assets or for bad and doubtful debts. Any other reserve shown in the balance-sheet of the company and created by appropriation out of the profits of the company are to be treated as free reserves. It includes statutory development rebate reserve, investment allowance reserve. " ( 18 ) IN the book, Terminology for accountants, revised edition by the canadian Institute of Chartered accountants, the meanings assigned to the profit and Loss Account. reserve and reserve Fund at pages 69 and 75 respectively were pressed in service So far as profit and Loss Account is concerned, the meaning assigned reads thus:"1. The ledger account to which the balance of the revenue, income, expenses and loss accounts at the end of an accounting period are transferred, to show the net difference as the net income or net loss for the period. 2 (BN.) (a) retained earnings (b) The combined statement of income and retained earnings. " So far as reserve is concerned, at page 75, the following meanings is assigned to the said term: "1. An amount appropriated from retained earnings or other surplus, at the discretion of management or pursuant to the requirements of a statute, the instrument of incororation or by-laws of a company or a trust indenture, or other agreement, for a specific or general purpose such as future decline in inventory values, general contingencies, future plant extension and redemption of stocks or bonds. The reserve indicates that an undivided or unidentified portion of the net assets in a stated amount is being held or retained for general or specific purposes. 2. Under income-tax legislation, the term has several special meanings. "so far as reserve Fund is concerned, on the same page, it has been pointed out:"a pool of designated assets, usually cash and investment securities, earmarked for a specified purpose, e. g. sinking fund for bond redemption. "so far as accounting practice in connection with appropriation of net income goes, reliance was placed on dictionary for Accountants, fourth edition by Eric L. Kohler, Pretince Hall inc. EZNGLEWOOD Cliffs, New Jersey at pages 30 and 31 of the said dictionary, the following observations of this topic are found:"the disposition of noncorporate net income by the owner or partners, or of corporate net income by resolution of the directors (or, in Britain, by stockholders), sometimes summarised at the foot of an income statement; as, the setting aside or commitment of net income for dividends, the allocation of net income to a sinking fund or other appropriated surplus reserve or the transfer of net income or the balance of net income to earned surplus (retained earnings ). Among corporate enterprises there is some difference of opinion as to what items are income deduction (i. e. deductions from operating revenue before the determination of net income) and what items should be regarded as net income appropriations; as a rule, the former are unusual expenses including losses; the latter, transactions with stockholders or an earmarking of earned surplus. In British practice, appropriations also include direct (i. e. , income) taxes. See income deduction; net income. "at page 370, is found relevant discussion in connection with reserve :-"1. A segregation or earmarking of retained earnings (earned surplus) evidenced by the creation of a subordinate account; appropriated surplus; a true reserve. The earmarking may be temporary or permanent, the purpose being to indicate to stockholders and creditors that a protion of surplus is recognised as unavailable for dividends. Examples: reserve for contingencies; reserve for improvement; sinking fund reserve. (2) The total amount of recognised shrinkage in the cost of any fixed asset or class of fixed assets, credited to separate account; a valuation or allowance account. Examples: reserve for bad debts; reserve for (accumulated) depreciation (of fixed assets); reserve for amortization (of intangibles); see these terms. 3. Examples: reserve for contingencies; reserve for improvement; sinking fund reserve. (2) The total amount of recognised shrinkage in the cost of any fixed asset or class of fixed assets, credited to separate account; a valuation or allowance account. Examples: reserve for bad debts; reserve for (accumulated) depreciation (of fixed assets); reserve for amortization (of intangibles); see these terms. 3. = accrued liability; as, reserve for federal income-tax. 4. The understatement of financial condition as employed in the phrase secret (or hidden) reserve. 5. In the federal government, an appropriation or a part thereof not approtioned but set aside for possible future use or for return to the treasury. Uses of the terms other than in senses 1 and 5 are declining, the substitution of a allowance having gained considerable support in recent years. "in the light of these established accounting practice, it becomes clear that for earning development rebate, as a condition precedent, development rebate reserve of requisite amount as indicated by Section 34 (3) (a) has to be created by the assessee during the year mentioned in the provisions. That has been done by the assessee. As discussed earlier, there is no dispute on this point. Factually, it has also been found as discussed earlier that an amount more than equivalent to the said reserve amount was actually spent by the assessee during the relevant time for installing capital assets. Therefore, the very purpose of the development rebate reserve was exhausted. That was done within eight years of creation of such reserve. There is no dispute that it was so done in the very next year. If that is so, how accounting entries are effected after the purpose of reserve has exhausted is the question which is to be answered on the anvil of the established accounting practice and for which the statute is silent. Consequently, in the light of the aforesaid settled accounting practice, it was open to the assessee to deal with development rebate reserve which had itself become a free reserve and to carry forward the said amount to the general reserve. Consequently, posting of such entries cannot be treated to be in any way illegal or contrary to the established accounting practice. All that the revenue apprehended was that the dividend might have been distributed- from the general reserve out of nucleus provided by carried forward balance from the development rebate reserve account. Consequently, posting of such entries cannot be treated to be in any way illegal or contrary to the established accounting practice. All that the revenue apprehended was that the dividend might have been distributed- from the general reserve out of nucleus provided by carried forward balance from the development rebate reserve account. We have already seen earlier that this apprehension was misconceived as in fact and also in law, dividend had to be distributed out of profits and there were huge amounts of profits available for meeting the amount of Rs. 29,000/- by way of dividend which was distributed. Consequently, on the facts of this case, there was no escape from the conclusion that all conditions precedent as contemplated by Section 33 read with Section 34 (3) (a) of the Act were satisfied by the assessee for not only earning development rebate but for retaining it and the prohibited purposes enumerated by Section 34 (3) (a) (i) and (ii) were absent on the facts of the present case. There was no occassion for the revenue to fall back upon Section 155 (5) of the Act. This discussion would have put an end to the controversy on questions nos. 1 and 2 but for the fact that certain authorities were pressed in service by both the sides and hence, it would be necessary to quickly glance at them. ( 19 ) MR. Shelat for the Revenue invited our attention to a decision of the Madras high Court in the case of CIR, Madras v. Veeraswami Nainar and Others, 55 itr 35. In that case, the division bench of the Madras High Court was concerned with the question of allowance of development rebate to reserve under section 10 (2) (VI-b) of the Income-lax act, 1922. The said provision laid down certain conditions precedent for earning development rebate. The conditions precedent provided therein were on parallel lines as the conditions found in section 34 (3) (a) of the present Act. On the facts of the case before the Madras high Court, it was found that the assessee had failed to satisfy the conditions requisite for obtaining the development rebate by not creating the concerned reserve. Once it was found as a matter of fact that the very conditions prececdent for earning rebate were held to the absent, the assessee could not gel benefit of allowance of development rebate. Once it was found as a matter of fact that the very conditions prececdent for earning rebate were held to the absent, the assessee could not gel benefit of allowance of development rebate. We fail to appreciate how this judgment can be of any avail to the revenue. ( 20 ) OUR attention was then invited to another judgment of the Madras High court in Indian Overseas Bank Ltd. v. CIT, Madras, 63 ITR 733. In that case, a similar question arising under the earlier act was posed for consideration of the madras High Court. The assessee company in that case had claimed development rebate and had contended that it had set apart a sum of Rs. 6 lakhs during the assessment year out of its net profits which not only satisfied the requirements of Section 17 of the Banking companies Act but also the requisites of section 19 (2) (vib) of the Indian Income- tax Act, 1922. It was held that as the assessee when setting apart the sum of rs. 6 lakh had not expressed the purpose for doing so, the conditions prescribed by clause (b) to the proviso to Section 10 (2) were not complied with and development rebate was not allowable. This very judgment was confirmed by the Supreme Court in Indian Overseas bank Ltd. , v. CIT. 77 ITR 512. It would, therefore, be better to refer to the supreme Court judgment itself. Considering the aforesaid facts established before the Madras High Court, the Supreme Court speaking through hegde J. made the following pertinent observations:"the assessee was not entitled to the development rebate. The grant of this rebate was a concession subject to the fulfilment of the conditions prescribed under the proviso, and the creation of a reserve fund under Section 17 of the banking Companies Act was not sufficient compliance with the proviso even though the amount so carried to the reserve fund might be large enough to cover both requirements. "it was further stated that:"the reserve contemplated by that provision is a separate reserve. The amount transferred to that reserve cannot be utlised for business purposes. The reserve contemplated by proviso (b) to section 10 (2) (vib) 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. The amount transferred to that reserve cannot be utlised for business purposes. The reserve contemplated by proviso (b) to section 10 (2) (vib) 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 (IN THE PRESENT CASE, THE period IS REDUCED TO EIGHT years.) for the purposes of the business of the undertaking. The nature of the two reserves is different. They are intended to serve two different purposes. . . . That the object of the legislature in allowing a development of the assessees business from the terms of the proviso. The entries in the account books required by the proviso are not an idle formality. The assessee being obliged to credit the reserve fund for a specific purpose, he cannot draw upon the same for purposes other than those of the business and that amount cannot be distributed by way of dividend. It is also clear from the terms of the proviso that the transfer to the reserve fund should be made at the time of making up the profit and loss account. "it is difficult to appreciate how the ratio of this judgment confirming the Madras high Court view can be pressed in service on the facts of the present case. In fact, it is this judgment which has prompted the ITO to hold against the assessee As seen earlier, it is not the departments case that such separate reserve was not in fact created by the assessee as required by Section 34 (3) (a ). Once this is done, how the reserve has to be dealt with after its purpose is exhausted is entirely a different question which is not covered by the aforesaid decision. On the facts of the present case, as the condition precedent is satisfied, the assessee has definitely earned the development rebate as claimed. . ( 21 ) MR. Shelat then took us to Vikram mills Ltd. v. ITO, 105 ITR 423. It will be necessary to note a few relevant facts considered by the Division Bench of this court in that case as in our view, the said decision instead of helping the revenue supports the case of the assessee. . ( 21 ) MR. Shelat then took us to Vikram mills Ltd. v. ITO, 105 ITR 423. It will be necessary to note a few relevant facts considered by the Division Bench of this court in that case as in our view, the said decision instead of helping the revenue supports the case of the assessee. In the assessment year 1964-65, the petitioner-assessee Company was given an allowance in the sum of Rs. 49,354 by way of development rebate under Section 33 on account of its having purchased certain machinery during the relevant previous year, the company having credited the necessary amount to a reserve account as required by Section 34 (3) (a ). The period of eight years provided in section 34 (3) (a) expired on 31-12-1971. Some time in the middle of 1971, the petitioner-Company declared dividend for the period 1-1-1970 to 31-12-1970 and an amount of Rs. 2,05,544 was drawn from the general reserve, which had stood at rs. 24,72,141 and it was utilised for the payment of dividend. Some time in the middle of 1972, the petitioner-Company transfreed to the general reserve an amount of Rs. 93,171 which was the total amount then standing to the credit of the development rebate reserve. The transfer was made effective from the last day of the calendar year 1971 that is, from 31-12-1971. The ITO was of the view that as the amount of the development rebate had been transferred to the general reserve, the payment of dividend for the year 1970 out of the general reserve could be considered as having utilised the amount of the development rebate reserve within the period of eight years for the purpose of Section 155 (5) (ii) of the Act and by an order dated 27-12-1975, he amended the order of assessment for the assessment year 1964-65 and recomputed the total income of the assessment year 1964-65 by adding back the amount of rs. 49,354 which was originally allowed as development rebate. The petitioner-assessee filed a writ petition challenging the said order of the ITO. 49,354 which was originally allowed as development rebate. The petitioner-assessee filed a writ petition challenging the said order of the ITO. According the petition, the division bench speaking through P. D. Desai, J. held that as the dividend was already declared and paid out of the general reserve much prior to the date on which the decision to merge the development rebate reserve with the general reserve was taken by the assessee-company, there was no occassion for suggesting that the transferred balance of development rebate reserve could have been utilised by the assessee-Company for distributing dividend. Mr. Shelat for the revenue contended that on this finding of the division bench, no further discussion was required and, therefore, what has been observed subsequently is by way of obiter. It is true that factually, the aforesaid finding is reached, but as the revenue contended that development rebate could not be granted as reserve was not kept intact for eight years, the division bench examined that contention on merits after hearing both the parties and also further contention whether general reserve was sufficient to meet the liability for payment of dividend for the year in question. So far as the last question was concerned, it was held that the amount standing at the credit of the general reserve was sufficient to meet the liability for payment of dividend for the calendar year since the amount of dividend did not exceed Rs. 2,05,544/ -. The petitioner-Company was not enabled to declare and pay dividend out of the general reserve on account of the merger of the development rebate reserve with the general reserve but despite it. That was also the reason which weighed with the division bench for holding that the petitioner-Company had utilised the amount credited to the reserve account created under Section 34 (3) (a) for a period of eight years and that was one of the reasons why the division bench held that the condition precedent for exercise of power under Section 155 read with Section 155 (5) of the Act was not satisfied and the ITO had no power, authority or jurisdiction to recompute the total income of the assessee for the assessment year 1964-65. ( 22 ) THE division bench then examined the contention of the revenue that if separate development rebate reserve created under Section 34 (3) (a) was not kept intact for a period of eight years and that such reserve was merged with the general reserve at any time during the course of the specified period of eight years, the ITO was authorised to act under section 154 read with Section 155 (5) AND to AMEND the order of assessment. The said contention which was seriously pressed for consideration by the revenue was repelled by the division bench on interpretation of the relevant provisions and it was held that in the first place, the impugned order could have been passed only if Section 155 (5) was attracted for it is by virtue of the fiction therein enacted that the development rebate originally allowed could be treated as having been wrongly allowed and action could be taken to rectify the mistake taking advantage of the enlarged period of limitation therein prescribed. NOW, in order that the fiction can be invoked, it must be shown that the assessee had utilised the amount credited to the reserve account under Section 34 (3) (a) before the expiry of the period of eight years (i) for distribution by way of dividends or profits or (ii) for remittance outside India as profits, or (iii) for the creation of any asset outside India or (iv) for any other purpose which is not a purpose of the business of the undertaking. Section 155 (5) does not expressly provide that if the special reserve, which was created under Section 34 (3) (a) is merged with any other reserve, the development rebate shall be straightaway deemed to have been wrongly allowed. On this reasoning, the contention of the revenue that development rebate reserve could not be utilised for eight years and reserve should be kept intact was repelled. On this reasoning, the contention of the revenue that development rebate reserve could not be utilised for eight years and reserve should be kept intact was repelled. It is true that the division bench thereafter examined further aspect of the matter and came to the conclusion that in fact, the development reserve account was kept intact in a separate reserve without being utilised for a period of eight years and it was not used for any prohibited purposes and after the expiry of the period of eight years, a decision was taken by the petitioner-Company to merge the special reserve with the general reserve with effect from the last day of the completion of the period of eight years. But even that apart, the division bench in terms interpreted the relevant provisions of the Act and held that there was no necessity to keep separate development rebate reserve for all eight years intact and it can be used for business purposes which are not prohibited by the statute. In view of the aforesaid decision on this point, the main plank of the revenues attack in the present case would get displaced. As discussed earlier, the factual position in the present case is stronger than what obtained in vikram Mills case (supra ). Here, as compared to the vast general reserve balance and even profit balance, a meagre amount of Rs. 29,000/- was utilised for distribution of dividend which easily have been met through this balance and there was no occasion for the assessee to utilise the transferred balance of development rebate reserve to general reserve for paying this amount. The aforesaid decision of this Court fully supports the case of the assessee. We respectfully follow the reasoning adopted by the aforesaid division bench on similar fact situation as well as on construction of relevant provisions. ( 23 ) MR. Shelat invited our attention to shri Shubhlaxmi Mills Ltd. v. Addl. CJ. T. 177 ITR 193. In that case, the supreme Court was concerned with the question about allowance of development rebate under Section 33 (1) of the Act read with Section 34 (3) (a ). ( 23 ) MR. Shelat invited our attention to shri Shubhlaxmi Mills Ltd. v. Addl. CJ. T. 177 ITR 193. In that case, the supreme Court was concerned with the question about allowance of development rebate under Section 33 (1) of the Act read with Section 34 (3) (a ). R. S. Pathak, c. J. , speaking for the Supreme Court in that connection made the following pertinent observations:"in order to claim the deduction on account of development rebate under section 30 (1) of the Income-tax Act, 1961, it is obligatory that the debit entries in the profit and loss account and the credit entry in a reserve account should be made in the relevant previous year in which the machinery or plant is installed or first put to use. In view of the explanation added with retrospective effect from the commencement of the Act, to clause (a) of Section 34 (3), it is clear that what is contemplated is the creation of a reserve fund in the relevant previous year irrespective of the result of the profit and loss account disclosed by the books of the assessee. Mere book entries will suffice for creating such a reserve fund. The debit entries and the entries relating to the reserve fund have to be made before the profit and loss account is finally drawn up. This is a condition for securing the benefit of development rebate and if the condition is not satisfied the deduction on account of development rebate cannot be claimed at all. "in the light of the aforesaid settled legal position, it becomes obvious that while effecting mere book entries on creation of development rebate reserve, necessary debit and credit entries have to be made up before profit and loss accounts are finally drawn. If the assessee misses such step, he can be said to have missed the bus so far as claim from development rebate is concerned. On the facts of this case, such is not the situation. It is not in dispute that debit entries of requisite amounts were effected in the profit and loss account and corresponding credit entries were made in the development reserve account by the assessee. That was done before the profit and loss account was finally drawn up. On the facts of this case, such is not the situation. It is not in dispute that debit entries of requisite amounts were effected in the profit and loss account and corresponding credit entries were made in the development reserve account by the assessee. That was done before the profit and loss account was finally drawn up. Consequently, the aforesaid decision of the Court rendered on the facts before them can be of no assistance to the revenue in the present case. ( 24 ) MR. Shelat then took us to Addl. CIT v. Nagardas Bechardas and Brs. Put. Ltd. 104 ITR 123. . In that case, another division bench of this Court was concerned with a slightly different question. IN that case, the assessee had created a separate reserve which had fallen short of prescribed amount laid down by the legislature for such category. It became obvious that when the legislature wanted creation of reserve equal to 15% of the development rebate which was required to be actually allowed, if reserve provided is for any amount less than 75%, the very condition precedent would not get satisfied, as happened in the aforesaid case. In the light of the facts situation that obtained in that case, the following pertinent observations were made by the division bench speaking through T. U. Mehta, J. :"under Section 33 of the Income-tax act, 1961, for the purpose of granting development rebate, different categories of cases are contemplated. One category is of the articles or things specified in the Fifth Schedule of the Act which would be entitled to development rebate of 35 per cent of the cost of the machinery or plant. Another category is the general category which governs other businesses entitled to development rebate at 20 per cent. Section 34 (3) (a) provides that no development rebate under Section 33 can be granted unless a reserve equal to 75 per cent of the rebate to be actually allowed under Section 33 is created by the assessee concerned. This is a condition precedent for earning development rebate under Section 33 and being a condition precedent, it is required to be strictly construed, because development rebate is a special concession or relief granted by the Act which cannot be earned unless the statutory condition attached to it is satisfied. "even this decision can be of no avail on the facts of the present case. "even this decision can be of no avail on the facts of the present case. It is not in dispute that full reserve of 75% of the rebate to be actually allowed under section 33 was in fact created by the assessee. Consequently, there is no incomplete compliance with the condition precedent in the present case as was the case before this Court in the aforesaid case. ( 25 ) MR. Shelat then took us to the calcutta High Court decision in Calcutta tramways Co. Ltd. v. CIT, 112 ITR 1041. In that case, the Calcutta High Court examined the facts situation before them wherein, the assessee-company had created only one reserve, viz. renewals and replacement reserve which could have included development rebate reserve amount. In the light of this factual position, it was held that renewals and replacement reserve account did not constitute a reserve as contemplated by section 34 (3) so as to justify allowance of development rebate under Section 33. It is obvious that by creation of any other reserve, whatever may be the excess balance therein would not meet the requirements of the statute which are in the nature of conditions precedent for earning such development rebate. This judgment falls in line with the Supreme court decision in 77 ITR 512 (supra) and does not take the case of the revenue any further. ( 26 ) WE were then taken to Leader Engg. Works v. CIT, 124 ITR 44. In that case, the Punjab and Haryana High Court was concerned with entirely a different fact situation. For assessment year 1964-65, the ITO had allowed to the assessee a registered firm development rebate amounting to Rs. 82,542. Later, the ITO found that the development rebate reserve amounting to Rs. 61,906/- which was created during the accounting period ending 31-12-1963, was distributed by way of profits and credited to the capital accounts of the partners during the accounting period ending 31-12-1971, i. e. , before the expiry of eight years and the assessee had therefore, infringed the provisions of Section 34 (3) (a) and hence he withdrew the development rebate allowed to the assessee in view of the provisions of Section 34 (3) (a) read with section 155 (5 ). The assessee having lost before the Appellate Assistant commissioner and in further appeal before the tribunal, ultimately got referred the question for consideration of the High court. The assessee having lost before the Appellate Assistant commissioner and in further appeal before the tribunal, ultimately got referred the question for consideration of the High court. The division bench of the High court speaking through B. S. Dhillon, J. concurred with the view expressed by the authorities below and held that the development rebate was rightly withdrawn by the ITO. It becomes obvious that there was a clear finding of fact in that case that the development rebate was spent by the assessee not for permitted business purposes but contrary to the said purposes it was utilised for distribution by way of profits to partners. To that extent, decision was rendered by the authorities below on facts. Such is not the case here. But even that apart, it is true that the division bench has held that statutory development rebate reserve must be kept intact for eight years and the division bench has dissented from the view expressed by the division bench of this Court in 105 ITR 423 (supra ). With respect, we are not able to agree with the dissenting view of the Punjab and haryana High Court for obvious reason that settled accountancy practice to which we have made a detailed reference entitles the assessee who has exhausted the purpose of creation of statutory development rebate by in fact utilising the amount equivalent or more as covered by such reserve for installing capital assets for business purpose to carry forward the balance to the source, viz. either profit or loss account or general reserve account. Therefore, it is not as if that even after the purpose is exhausted within eight years period which is permitted, such fictitious reserve which was merely a shadow of reserve from accounting point of view, should be kept hanging and uncredited. This aspect was not considered by the division bench and consequently, it is not possible to endorse the view taken by the said division bench. Even otherwise, on construction of the relevant provisions, we respectfully concur with the view expressed by the division bench of this Court in 105 ITR 423 (supra ). In fact, we are bound by the said view and even otherwise, the learned Advocate for the revenues could not persuade us to take a different view and to concur with the dissenting view of the Punjab and Haryana High Court. In fact, we are bound by the said view and even otherwise, the learned Advocate for the revenues could not persuade us to take a different view and to concur with the dissenting view of the Punjab and Haryana High Court. If he would have been able to so persuade us, we would have been required to refer the matter to a larger bench. But such a contingency does not arise in view of our respectfully concurring with the view of the division bench of this Court in 105 ITR 423 (supra ). ( 27 ) MR. Shelat then took us to Surat textile Mills Ltd. v. CIT, 80 ITR 1. The legal position in that case was highlighted to the effect that under clause (b) of the proviso to Section 10 (2) (vib) of the 1922 Act, the amount to be transferred to the reserve contemplated by that clause must be debited before the profit and loss account is made up and secondly, the transfer to the reserve fund should be made at the time of making up of the profit and loss account. This view runs parallel to the view of the Supreme court in 177 ITR 193 (supra ). It is not the contention of the revenue that the assessee had failed to effect necessary debit to the profit and loss a/c. and corresponding credit to development rebate reserve account before profit and loss accounts were made up. Hence, decision also cannot be of any avail to the revenue. ( 28 ) THE resume of the aforesaid decisions cited by the revenue shows that none of them helps the revenue, but on the contrary the division bench of this court in Vikram Mills case (supra) completely supports the case of the assessee on the facts of the present case. ( 29 ) WE may now turn to the few of the decisions on which reliance was placed by the learned Advocate of the assessee. In CIT v. Indian Iron and Steel co. ( 29 ) WE may now turn to the few of the decisions on which reliance was placed by the learned Advocate of the assessee. In CIT v. Indian Iron and Steel co. Ltd. , 111 ITR 843, a division bench of the Calcutta High Court had to consider the question whether development rebate earned by the assessee was liable to be withdrawn under Section 155 (5) (ii) of the act only becuase there was transfer of development rebate reserve account for payment of loan to the Government and the World Bank which loan had been incurred also for the purpose of installation of the machinery of the assessee company. Agreeing with the tribunal that development rebate was not liable to be withdrawn, it was observed:"it was undisputed that the payment of loan incurred to the World Bank or to the Government was one for business and it was a user of money for the purpose of the undertaking of the assessee and was not a user prohibited under Sec. 155 (b) (II) of the Income-lax Act 1961, that is, these amounts were not paid for distribution of dividends or for remittance of profits outside India. "it was further observed:"it is true that, normally, a reserve must be for an unspecified liability or unknown liability but in this case we are dealing with the question of reserve account which is supposed to be used for the purpose of the business of the undertaking and that reserve account is prohibited from being used for payment of dividends for remittance of profits outside India. "as factually, it was not found that moneys were utilised for payment of dividends to shareholders outside India, the development rebate which was earned was not liable to be withdrawn. This judgment was relied upon by Mr. Patel for the assessee in support of his contention that if factually, it is found that the amount represented by development rebate reserve and equivalent amount and even more amount was spent for installing fixed assets there would remain no case for the revenue to invoke Section 155 (5) of the Act. ( 30 ) MR. Patel next invited our attention to another judgment of the division bench of the Calcutta High Court in CIT v. Indian Iron and Steel Co. Ltd. , 113, ITR 810. ( 30 ) MR. Patel next invited our attention to another judgment of the division bench of the Calcutta High Court in CIT v. Indian Iron and Steel Co. Ltd. , 113, ITR 810. In that case, another division bench of the Calcutta High Court was concerned with a fact situation in which the assessee had created development rebate account and had spent amount from this reserve for the purpose of payment of loan of the assessee. In light of this fact situation, it was held that there was no violation by the assessee. This judgment also lays down that when the amount in the reserve is shown to have been spent for business purpose, Section 155 would be out of picture. On the facts of the present case, similar situation is obtained. ( 31 ) MR. Patel then took us to CJT v. Ganges Mfg. Co. Ltd. , 133 ITR 405. The facts before the Calcutta High Court in that case were parallel to the facts considered by the division bench of this court in 105 ITR (supra ). Sabyasachi mukharji, J. speaking for the Calcutta high Court noted the facts that for assessment year 1962-63, the assessee was allowed development rebate amounting to Rs. 17,07,973/- for which it had also created the necessary reserve. However, on 31-3-1963, the assessee transferred a sum of Rs. 6,01,000/- from the development rebate reserve to its general reserve and, thereafter, it transferred a sum of Rs. 3,00,000/- from the general reserve to the profit and loss appropriation account for declaration of dividends. The ITO held that the transfer of Rs. 6,01,000/- from the development rebate reserve to the general reserve and, thereafter, it transferred a sum of Rs. 3,00,000/- from the general reserve to the profit and loss appropriation account for declaration of dividends. The ITO held that the transfer of Rs. 6,01,000/- from the development rebate reserve to the general reserve and the diversion thereafter of Rs, 1,00,000/- from the general reserve for declaration of dividends was infringement of Section 34 (3) of the I. T. Act, 1961 justifying the withdrawal of the development rebate already granted to the assessee and initiated proceedings under Section 155 (5) read with Section 154 and withdrew the development rebate amounting to Rs. 63,338. The AAC did not agree with the view of the ITO. 63,338. The AAC did not agree with the view of the ITO. On further appeal, the tribunal found that there was a substantial amount of Rs. 76,50,000/- in the general reserve and even without any transfer of amount from the development rebate reserve, the sum declared as dividends could have been met from the general reserve, that merely because to the general reserve was added during the relevant year a sum of Rs. 3,00,0007- from the development rebate reserve it could not be held that the transferred amount was also utilised for declaring dividends, that even, after the declaration of dividend there was much more amount in the general reserve than what had been transferred to it from the development rebate reserve. Consequently, it was held that no part of the amount credited to the development rebate reserve account was utilised by the assessee for distribution by way of dividend or profit and the withdrawal of the development rebate was not justified. The fact situation in the present case is almost parallel to the fact situation which obtained before the Calcutta High Court in the aforesaid case. This decision was rightly pressed in service by the learned advocate of the assessee. ( 32 ) IN view of the aforesaid discussion, there is no escape from the conclusion that the revenue had made out no case for withdrawal of development rebate from the assessee for the concerned year. Questions Nos. 1 and 2, therefore, require to be answered in the affirmative, in favour of the assessee and against the revenue. ( 33 ) THAT leaves out consideration of the aspect reflected by Question No. 5 which has been referred for our opinion at the instance of the assessee. That question flows from the observations of the tribunal in para ISA of its judgment. So far as these observations are concerned, no exception can be taken to the view expressed by the tribunal while agreeing with Mr. Desai for the revenue that the assessee cannot urge that only because some assets have been acquired, it should be deemed that there was utilisation of development rebate reserve for that purpose. No such provision is found in any part of the statute. The tribunal was also right in saying that some other material is necessary. Desai for the revenue that the assessee cannot urge that only because some assets have been acquired, it should be deemed that there was utilisation of development rebate reserve for that purpose. No such provision is found in any part of the statute. The tribunal was also right in saying that some other material is necessary. But as we have already discussed earlier, there is lot of material on record as contradistinguished from something more which was expected by the tribunal and it could be found out that the amount earmarked in the development rebate reserve charged for utilisation for business purpose was a small amount as compared to larger and substantial amount that was already utilised for installation of fixed assets as the relevant time. Unfortunately, all these points were not highlighted before the tribunal and, therefore, the tribunal felt that even if clear entries are not passed linking up this reserve with acquisition of assets, some other material may perhaps be necessary. Such observations on the facts of this case were not useful as there was overwhelming evidence on record to which we have made detailed reference earlier for showing utilisation of this amount for permissible business purposes. ( 34 ) WHEN we turn to Question No. 5 as framed and referred for our opinion, it becomes obvious that the said question will have to be answered in the negative for the simple reason that it cannot be said that the tribunal was justified in holding that on aquisition of assets of the value of more than the development rebate reserve, without making any entry in development rebate reserve account, it could not be held that the same was utilisation of development rebate reserve for the said purpose. This answer becomes obvious in the light of the settled accountancy practice discussed by us earlier. Therefore, entry or no entry in the development rebate reserve account, if independently it is shown from the evidence on record that any equivalent or higher amount for in excess of the charged amount found in the development rebate reserve account was in fact utilised at the relevant time by the assessee for permissible business purposes mere absence of entry in the development rebate reserve account cannot be held to go against the assessee for negativing his claim for development rebate. Consequently, Question No. 5 will have to be answered in the negative, in favour of the assessee and against the revenue. ( 35 ) QUESTION No. 3: So far as this question is concerned, it will have to be answered in favour of the assessee and against the revenue as it is fully covered by the decision of a division bench of this court in CITv. Karamchand Premchand p. Ltd. , 152 ITR 94. This decision was rendered in the case of this very assessee for earlier years. In that case, the Division bench speaking through S. L. Talati, J. took the view that when the shareholders of the company desired to remunerate the three directors for extra work rendered by them, such remuneration intended to be paid as salary to the directors can be treated to be an employees of the company and, therefore, expenditure thereon can be treated as permissible expenditure on employees. It, therefore, becomes obvious that Rs. 27,000/- being contribution to superannuation fund and Rs. 12,000/- being contribution to provident fund in respect of the directors of the company, who were treated as employees, had to be considered as allowable expenditure. Question No. 3 is, therefore, answered in the affirmative, in favour of the assessee and against the revenue. Question No. 4: This question centres round claim of Rs 36,918/- said to have been spent by the assessee during the relevant time by way of service line charges. Even this question is covered in favour of the assessee by a Division Bench judgment of this Court in Sarabhai M. Chemicals Pvt. Ltd. v. CJT, 127, ITR 74. That was the case concerning sister concern of the present assessee. That sister concern also made paymnet for conclusion for new power line so that electic supply could be obtained without interruption. The amount paid by the assessee in that case as its share for cable line charges recovered by the GEB was held to be revenue expenditure and not capital expenditure. In this connection, B. J. Divan, C. J. speaking for the Division bench has made the following pertinent observations:"if a payment has to be made for augmenting the productivity of the profit- making structure, that payment would be revenue expenditure and not capital expenditure. In this connection, B. J. Divan, C. J. speaking for the Division bench has made the following pertinent observations:"if a payment has to be made for augmenting the productivity of the profit- making structure, that payment would be revenue expenditure and not capital expenditure. Therefore, where payment is made for securing or augmenting electrical power supply, so that the profit making apparatus or the profit-making structure can be operated with greater productivity and production can be increased, the payment will partake the character of revenue expenditure. "the facts in the present, case on the basis of which service line charges are claimed as permissible revenue expenditure are almost parallel. Respectfully following the aforesaid division Bench judgment, Question No. 4 will have to be answered in the negative, in favour of the assessee and against the revenue. Reference disposed of accordingly with no order as to costs. Answer accordingly. .