Masud, J. -
(1.)We have delivered a judgment in ITR No. 175 of 1970 [Commissioner of Income-tax v. Calcutta Tramways Co. Ltd.] today, where we have held that, on the facts and in the circumstances of the case, the assessee-company's entries in the balance-sheet as on 31st December, 1961, regarding the sum of 9,473 constituted a "reserve" within the meaning of Section 34(3)(a) of the Income-tax Act, 1961, and that the assessee-company is entitled to development rebate under Section 33 of the Act. In the present reference the same assessee for the same financial year has caused this reference under Section 256(1) of the said Act against the decision of the Appellate Tribunal where an alternative contention of the assessee has been rejected by the Tribunal. The question of law referred to the court in a supplementary statement of case is as follows :
" Whether the credit of a sum of 1,00,000 to the renewals and replacement account by debit to the applicant's general revenue account for the year 1961 constitutes credit to a ' reserve account' as contemplated by Section 34(3) of the Income-tax Act, 1961, so as to justify allowance of development rebate under Section 33 of this Act? "
(2.)Mr. Ginwalla has drawn our attention to the agreement entered into between the assessee-company and the Government of the State of West Bengal incorporated in the Calcutta Tramways Act, 1961. The material portions of Clause 4(1) of this agreement read as follows :
" 4(1). The company shall apply its revenue in the manner following, that is to say : (a) Firstly, paying all expenses of maintaining and working the undertaking including debenture interests; (b) Secondly, paying all Indian and United Kingdom taxes payable by the company ; (c) Thirdly, setting aside in each accounting year in a renewals and replacement reserve account, the sum of 80,000 pound sterling or such greater sum as the directors of the company for the time being may in consultation with the Government consider necessary in the light of experience and in view of the compensation (sic) of the undertaking or increase in the price......"
According to him, under the said agreement the assessee is under an obligation to set aside at least a sum of 80,000 in the renewals and replacement reserve account every year. But the balance-sheet for the said year expressly shows that the assessee has set aside 1,00,000 under the head " Renewals and Replacement Account ". Thus, although only a sum of 9,473 is to be set apart as development rebate reserve under Section 34(3)(a) of the Income-tax Act, an excess amount of 20,000 is lying credited in the "renewals and replacement account". He has further added that, admittedly, for the purpose of getting development rebate under Section 34(3)(a), the specific amount equal to seventy-five per cent. of the development rebate to be actually allowed, was to be utilised for the purpose of the business of the assessee subject to the exceptions mentioned in the said section. Any amount set apart in the " renewals and replacement account " can naturally be used for the purpose of the business of the assessee. He has, therefore, invited us to hold that the conditions under Section 34(3)(a) have been complied with and the assessee is entitled to development rebate under Section 33,
(3.)Mr. Pal with Mr. Sengupta, counsel appearing on behalf of the revenue, has, however, asked the court to reject the contention of Mr. Gin- walla on the ground that " reserve account" referred to in Section 34(3)(a) must refer to a specific fund other than the sums lying in the " renewals " and "replacement account". Counsel has submitted that "renewals and replacement account" contemplates a particular contingency which cannot be identical with the situation contemplated under Section 34(3)(a). Relying upon Metal Box Company of India Ltd. v. Their Workmen , it has been argued that the fallacy of Mr. Ginwalla's argument is that he has not made any distinction between a "provision" and a " reserve". The excess amount of 20,000 lying credited in the " renewals and replacement account " is earmarked for a specific purpose and the said sum cannot be described as a sum lying deposited under a " reserve account" within the meaning of Section 34(3)(a) for the purpose of development rebate. We have already held in our earlier judgment in the other reference that the "reserve account" under Section 34(3)(a) of the Income-tax Act does contemplate a " reserve fund " which has to be set apart under a separate head and which could only be used for the purpose of business of the assessee other than :
(a) for distribution by way of dividends and profits ; (b) for remittance outside India as profits or for creation of any asset outside India. In the other reference the amount equal to seventy-five per cent. of the development rebate to be actually allowed has been shown in the balance-sheet to have been expressly debited from the " shareholders' account" and added back under the same account. There the sum of 9,473 has been kept under sub-head " special accounts " under " shareholders' account". The point to be decided here is whether this sum of 9,473 could also be deemed to have been credited as "reserve " in the " renewals and replacement account ".