The Subsidiary Alliance System was a strategy employed by the British East India Company in India during the colonial period. It involved several key elements:

Acquisition of Territories: The British East India Company used the Subsidiary Alliance System to expand its control over various Indian princely states. This is stated correctly in statement (1). The British sought to annex or establish influence over additional territories.

Responsibility for Protection: Under this system, Indian rulers (nawabs and local rulers) had to accept the responsibility of allowing the British to handle their internal and external protection. This is correctly stated in statement (2). The British took control of the defense of these territories.

Disbanding of Local Armies: This is where statement (3) is incorrect. As part of the Subsidiary Alliance System, the Indian rulers were often required to disband or significantly reduce their own armies. The British would station their own troops in these territories and essentially took over the military control.

Dependency on the British: Nawabs and local rulers became increasingly dependent on the British for protection and support. They had to pay for the maintenance of the British troops stationed in their territories, which put them in a position of financial and military dependence. This is correctly stated in statement (4).

So, option (3) is incorrect because the Indian rulers were generally not allowed to keep their own armies under the Subsidiary Alliance System.