C.S.P Singh, J.:— The reference relates to the assessment years 1968-69 and 1969-70. It has been at the instance of both the assessee and the department. The questions referred at the instance of the parties are:

At the instance of the Commissioner for A.Y 1968-69.

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the conference hall was a building which was being used by the assessee as a hotel within the meaning of section 32(1)(v) of the I.T Act?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that half of the profits of the current year were liable to be added while computing the capital of the assessee for working out the relief due to it under section 84 of the Income-tax Act for assessment year 1967-68?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the loan of Rs. 23,74,000 taken by the assessee from the Industrial Finance Corporation of India was not liable to be deducted while computing its capital for working out the relief due to it under section 80J of the Income-tax Act?”

At the instance of the assessee for A.Y 1968-69.

“4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the computation of capital employed in the business of the hotel in the accounting year ended on September 30, 1966, should be done under rule 19 of the Income-tax Rules and not under rule 19A, section 80J(3) of the I.T Act?

5. Whether the Tribunal was correct in holding that loans taken by the assessee had to be deducted for computing its capital as per the, provisions of rule 19 and rule 19A for the assessment years 1967-68 and 1968-69, respective???ly?

6. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that under rule 19 of the Income-tax Rules, 1962, the amount of depreciation was not liable to be added to the profits for computing the capital of the assessee in respect of the assessment year 1967-68?”

At the instance of the Commissioner for A.Y 1969-70.

“7. “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the amount of Rs. 24,000 paid by the assessee as composition fees to the Cantonment Board was liable to be included in the cost of the swimming pool and the building for purposes of allowance of depreciation on them?” At the instance of the assessee.

“8. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in rejecting the assessee's claim for initial depreciation under s. 32(1)(v) on the amount of Rs. 50,635?”

2. The accounting years for the assessment years involved in the reference ended on 30th September, 1967, and 30th September, 1968, respectively. The facts relevant for answering the questions for the assessment year 1968-69 are being mentioned first. The assessee was running a hotel. It constructed a conference hall which was completed in September, 1967. This hall, according to the assessee, was used for the first time on 3rd September, 1967, when a conference of the Indian Institute of Management was held therein. According to the assessee, an amount of Rs. 2,47,342 was spent on the construction of this hall. Claim for depreciation in respect of this construction was made under s. 32(1)(v) of the Act. The ITO, however, took the view that the claim under s. 32(1)(v) was allowable in respect of a complete hotel and not for additions made thereto. The AAC held that the conference hall had been constructed before the 31st March, 1967, and the shops which were also part of the construction had been let out before the 1st of March, 1967, and rejected the claim of the assessee. On an appeal before the Tribunal, the Tribunal after considering the evidence on record held that the conference hall had been completed after the 31st March, 1967. Taking the view that the conference hall was a part of the hotel being run by the assessee, it upheld the depreciation claimed under s. 32(1)(v). There was another dispute in this assessment order and that was in respect of relief under s. 80 J. This provision had been introduced in the I.T Act with effect from 1st of April, 1968. Simultaneously with the introduction of this provision, s. 84 of the Act had been deleted. Under this provision, the assessee was entitled to a deduction from the profits and gains of the business of the hotel of 6% of the relevant capital employed during the previous year. The method of computation of the capital employed was laid down in r. 19A. Earlier, similar deductions were dealt with by s. 84 and the capital employed had to be computed in accordance with r. 19. Section 80J, however, made a departure from s. 84 by providing under sub-s. (3) the right to carry forward the unabsorbed amount of capital employed for a period of seven years which could not be fully allowed in years of loss or when the profit was less. The assessee-company had not made any profit from the hotel business during the assessment year 1967-68 and, therefore, no relief under s. 84 was granted to it in that year. In the assessment year 1968-69, the assessee had made profits and claimed that the unabsorbed relevant amount of capital employed be set off against the profits of the assessment year 1968-69. In this respect, the assessee's contention, further, was that the relevant amount of capital employed for the assessment year 1967-68 should be calculated in accordance with r. 19A and not by reference to r. 19. This contention was, however, rejected and the ITO calculated the relevant amount of capital employed for the assessment year 1968-69 under r. 19 and gave benefit for the same. The AAC took the same view. The Tribunal concurred. Connected with the issue of the calculation of the relevant amount of capital employed, was the addition of half of the profits to the amount of the capital computed in accordance with r. 19(5). The ITO, inasmuch as he was relying on r. 19 for the purposes of the assessment year 1967-68, applied r. 19(5) and added the amount of Rs. 27,298 while making the calculation under that rule. Another aspect of the controversy regarding the computation of the capital employed under r. 19 was as to whether half of the amount of Rs. 4,15,909 representing the amount of depreciation debited in the profit and loss account should be added to the book profit for purposes of computing the relevant amount of capital employed. The ITO held against the assessee and so did the AAC. The Tribunal concurred with the view of these two officers. A further issue was as to whether the amount of Rs. 23,74,000, being loans taken by the assessee from the Industrial Finance Corporation of India, was liable to be included while computing the relevant amount of capital employed for purposes of granting relief under s. 80J. The ITO held that the amount of borrowed capital had to be excluded. The AAC took a contrary view. The Tribunal concurred with the view of the AAC mainly on the consideration that the loan had been taken for constructing the hotel and was repayable after a period of more than seven years. In their view the loan fell outside the mischief of the first part of r. 19A(3) in view of cl. (b) thereof. It also repelled the contention raised on behalf of the department that the amount had not been utilized for creating a capital asset as in its view the stand taken in the appeal was completely a new one. Coming to the facts relevant for answering the questions for the assessment years 1969-70, it appears that the assessee while constructing the hotel and a swimming pool had done so in contravention, of the bye-laws of the Cantonment Board and as a result in the year 1969-70, had to pay an amount of Rs. 24,000 as composition fees. The assessee claimed that this amount be added in the construction cost of the building, under s. 32(1)(v). The ITO and the AAC held against the assessee on the view that the amount paid was by way of penalty for contravention of law. The Tribunal, however, took the view that the composition fee could be included in the cost of the asset as in its view the words “cost of the asset” were of wide amplitude. In this year, a claim was also made for Rs. 50,635 as representing the cost of construction. This amount included the amount of Rs. 24,000 as composition fee and the balance cost of painting and water proofing, etc., of the roof of the conference hall. The claim regarding the painting and water proofing costs, etc., has been disallowed by all the three authorities on the ground that this expenditure was incurred after the conference hall had been created and did not relate to the costs of creation of the conference hall.

3. We will begin by addressing ourselves to the first question for the assessment year 1968-69. As has been noticed, the conference hall was built while the hotel business was already running. The Tribunal has found that the hall was built after the 31st of March, 1967. The assessee has claimed depreciation under s. 32(1)(v) of the Act which runs as under:

“32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed:— ……

(v) in the case of any new building, the erection of which is completed after the 31st day of March, 1967, where the building is owned by an Indian company and used by such company as a hotel and such hotel is for the time being approved in this behalf by the Central Government, a sum equal to twenty-five per cent. of the actual cost of erection of the building to the assessee, in respect of the previous year in which the erection of the building is completed or, if such building is first brought into use as a hotel in the immediately succeeding previous year, then in respect of that previous year; but any such sum shall not be deductible in determining the written down value for the purposes of clause (ii).”

4. In order to qualify for the deduction under s. 32(1)(v), to begin with, the building must be a new building, the erection of which is completed after the 31st day of March, 1967. Secondly, the building must be owned by an Indian company and used by the company as a hotel. Thirdly, the hotel must be one which is approved by the Central Govt. It is not disputed that the assessee is an Indian company running a hotel and in view of the finding given by the Tribunal we have to proceed on the basis that the erection of the conference hall was completed after the 31st day of March, 1967. What is in dispute is as to whether the word “building” includes addition to an already existing hotel and further as to whether a conference hall is a hotel. With the passage of time the concept of what constitutes a hotel has changed. Formerly, while a hotel provided amenities in the nature of a hostel, now, it is appropriately used to describe a building of many rooms, chiefly for overnight accommodation of transients and several floors served by elevators, usually with a large open street level lobbies, containing easy chairs, with a variety of compartments for eating, drinking, dancing, exhibitions, and group meetings (as of salesmen or convention attendants), with shops haying both inside and street-side entrances, and offering for sale items (as clothes, gifts, candy, theatre tickets, travel tickets) of particular interest to a traveller, or providing personal services (as hair-dressing, shoe-shining), and with telephone booths, writing tables, and washrooms. (See Webster's Third New International Dictionary, Vol. II, p. 1084). Dealing with modern hotels in Encyclopaedia Britannica, 1968 Edn., Vol. II, on page 748, we find the following description.

“All first class new hotels that were built in the late 1960s and early 1970s made provision for private bathrooms, and the larger London ones, such as the Churchill, Britannia, Portman, London International, and Skyline, mostly had accommodation for dealing with conferences, exhibitions, and banqueting, which provide the backbone of their off-season business. Similarly, in some of the chief provincial centres and at the more important holiday resorts, establishments were specially geared to catering to conference trade.

One new luxury establishment, the 60 bed-room Capital Hotel in Knightsbride, London, took the novel step of providing disposable razors and toothbrushes in all bathrooms as well as individual take operas in all rooms. Also in use in the United Kingdom were service credit cards valid at certain establishments for the payment of accommodation and meals.”

5. These reference books indicate the dramatic change in the facilities provided by new hotels which have sprung up of late. Conference halls have now become an established feature of good hotels. Section 80J was introduced on the 1st of April, 1968, and in view of the fact that modern hotels were providing conference halls as additional amenities, the Legislature must be taken to be cognizant of this facility afforded in big hotels, and also the fact that conference halls formed an integral part of newly established hotels. Thus, it has to be held that a conference hall being a part of a hotel would fall within the purview of s. 32(1)(v). The next question is Whether it will answer the description of a new building. As has been noticed, the case of the department is that an addition to an existing hotel will not satisfy the requirements of s. 32(1)(v). Now, the word “building” has not been defined by the Act. But, it cannot be denied that a conference hall is a building, for, it is a roofed structure which is one of the factors which has to be taken into consideration while considering whether a construction would be a building. It is also not disputed that it is a new construction. Thus, the conference hall is a new building constructed after the 31st of March, 1967, and used by the assessee as a part of the hotel, which hotel has been approved by the Central Govt. All the requirements of s. 32(1)(v) are, thus, satisfied and the assessee was entitled to the depreciation provided for under s. 32(1)(v).

6. For the sake of convenience, we will consider the third question, as we propose to consider the 2nd, 4th, 5th and 6th questions together. The Tribunal has allowed the addition of the borrowed capital by resort to r. 19A(3)(b). However, on the view that we propose to take it is not necessary to consider as to whether the borrowed capital was r???payable after a period of more than seven years. Rule 19A(3) provides for exclusion of borrowed capital while computing the capital employed for purposes of s. 80J. In the case of Kota Box Manufacturing Company v. ITO [see p. 638 (infra) (Appendix)] a Division Bench of this court held that r. 19A(3), so far it seeks to exclude borrowed capital for purposes of computation of the capital employed is ultra vires the rule-making power. This being so, the borrowed capital could not be excluded for computing the relevant amount of capital employed. Sri Ashok Gupta appearing for the department urged that as we are deciding this matter on a reference, it would not be proper for us to proceed to answer the question on the basis that r. 19A(3) is ultra vires the rule-making power. It is settled that in a reference one cannot declare any provisions of the Act or the Rules ultra vires. But we are doing nothing of the sort here. All that we propose to do is to take notice of the decision of this court in Kota Box [see p. 638 (infra) (Appendix)] which declares r. 19A(3) to be ultra vires. The effect of the decision is that r. 19A(3) is wiped out of the statute book, with the result that we have to decide the question as if r. 19A(3) is non-existent. We may also refer to the decision of the Andhra Pradesh High Court in the case of CIT v. Warner Hindustan Ltd., [1979] 117 ITR 68. In that case, one of the questions that arose for decision was as to whether r. 19A(3) can take away the benefit conferred by s. 80J. On an interpretation of r. 19A(3) it was held that the rule did not come in conflict with s. 80J inasmuch as s. 80J did not provide for the method by which the capital employed had to be computed. This, according to the Andhra Pradesh High Court, was left solely to the rule-making power. On this view, they held the rule to be int???a vires. Apart from this consideration the other ground on which they did not allow the validity of the rule to be canvassed was that no such plea had been taken by the assessee earlier. As at present advised we think it advisable to follow the decision of our court in preference to that of Andhra Pradesh. The result is that we hold that the Tribunal was right in holding that the loan amounting to Rs. 23,74,000 was not liable to be deducted while computing the capital employed for working out the relief allowable under s. 80J of the Act.

7. We indicated earlier that the 2nd, 4th, 5th and 6th question would be dealt with together. We begin by considering the 4th question as the answer to that will effectively dispose of the controversy raised by the other questions. To recapitulate the facts for answering the question No. 4: The assessee had claimed that the relevant amount of capital employed during the assessment year 1967-68, which could not be absorbed in that year, should, for purposes of s. 80J, be calculated on the basis of r. 19A and not on the basis of r. 19. Previously deduction up to the extent of 6% of the capital employed from the profits and gains of the business were allowed under s. 84 and the relevant amount of capital employed was calculated under r. 19. If in a particular year an assessee did not earn any profits and gains or the profits and gains fell short of covering the relevant amount of capital employed calculated in accordance with r. 19, the same could not be carried forward in the next year. Section 80J(3) permitted this to be done. The question is whether for the purposes of this new provision the relevant amount of capital employed for years other than 1968-69 should be calculated on the basis of r. 19A or r. 19? Section 80J(I) grants a deduction and directs that the relevant amount of capital employed should be calculated in the manner prescribed. The manner for computing it has been laid down in r. 19A. Section 80J(3) when it provides for setting off the unabsorbed amount of the capital employed which pertains to the earlier years does not indicate that the words “relevant amount of capital employed” have to be understood not in the sense as used in s. 80J(1), but in the sense in which they were understood under s. 84 which was its precursor. It is settled rule of construction that the words used in one part of a sub-section, unless there is a contextual intention to the contrary, have to be given the same meaning in the other parts of the section. We have, thus, to ascribe the same meaning to the words “relevant amount of capital employed” occurring in s. 80J(3) as that given to those words in s. 80J(1). Under s. 80J(1) the relevant amount of the capital employed has to be worked out in accordance with r. 19A. This impels us to hold that for purposes of s. 80J(3) the relevant amount of the capital employed has to be calculated in accordance with r. 19A. It is pertinent to point out that the words “relevant amount of capital employed”occurring in s. 80J(1) did not find mention in s. 84 of the Act on which the department places reliance. There is another consideration which weighs with us in adopting this interpretation. The assessee became entitled to the deduction under s. 80J(3) only as from the 1st April, 1968. Section 84 stood repealed then. The result of the repeal of s. 84 was that r. 19 fell with it. Rule 19 was a subordinate piece of legislation whose existence and efficiency depended on the longevity of s. 84, and once that provision flickered out, the rule became shrouded in darkness. Crates on Statute Law (7th edn.) (page 414) has this to say in such a situation:

“When a statute is repealed, any by-law or statutory instrument made thereunder ceases to be operative unless there is a saving clause in the new statute preserving the old by-law or statutory instrument. So where under the powers of a local Act a corporation had made by-laws for regulating the use of bicycles in streets and afterwards the local Act was repealed by the Local Government Act, 1888, it was held that the by-laws made under the local Act thereby ceased to be operative and were in effect repealed.”

8. The principle enunciated by Craies has the stamp of authority on it. As the Supreme Court in the case of Harish Chandra v. State of Madhya Pradesh, AIR 1965 SC 932, has this to say, in respect of subordinate legislation when the parent statute is repealed (p. 938):

“The other alternative would be that the notification dated August 26, 1949, was an independent piece of subordinate law making under the Essential Commodities Act and the Madhya Bharat Scrap Order, and it was this aspect that was stressed by Mr. Agarwala. Even if that be so, the appellant would derive no advantage from this, because there has been a repeal not merely of the Madhya Bharat Essential Supplies Act no doubt with a saving but of the Madhya Bharat Scrap Order without a saving and on the repeal of the Scrap Order under which the subordinate rule or regulation was effected the latter would also stand repealed. As explained by Lord Reading C.J in Watson v. Winch, [1916] 1 KB 688, 690 (KB):

‘It has been long established that, when an Act of Parliament is repealed, it must be considered (except as to transactions passed and closed) as if it had never existed… It would follow that any by-law made under a repealed statute ceases to have any validity unless the repealing Act contains some provision preserving the validity of the by-law notwithstanding the repeal.’

Admittedly, there is no saving clause either in the notification of the Central Government by which the Indian Scrap Order was extended to Madhya Bharat nor, of course, in the Scrap Order itself. As the parent order under which the notification was made has been repealed without a saving, the effect must be that the notification dated August 26, 1949, must, if it were held to be an independent subordinate legislation, be held also to have been repealed.”

9. We are fortified in the view that we take by the decision of the Karnataka High Court, Kirloskar Asea Ltd. v. CIT, [1979] 118 ITR 703.

10. The answer to the other inter-related question is consequential. So far as question No. 2 is concerned, the Tribunal added half of the profits of the current year while making the relevant capital computation by recourse to r. 19(5). As it has been held that the computation has to be made by r. 19A and not under r. 19 the Tribunal could not do so. So far as question No. 5 is concerned, the computation of the relevant amount of capital employed has to be made in accordance with r. 19A both for the assessment years 1967-68 and 1968-69. As r. 19A(3) is out of the way, borrowed capital had to be added to the capital employed. So far as the sixth question is concerned, inasmuch as we have held that the computation of the relevant amount of capital employed has to be done in accordance with r. 19A and not r. 19, it is not necessary to answer it.

11. We are now left with two questions, viz., question No. 7 and question No. 8, both of which are inter-connected. The amount of Rs. 50,635 forming the subject-matter of question No. 8 includes the amount of Rs. 24,000 paid as composition fees as well.

12. In our view, the amount of Rs. 24,000 paid as composition fees, for reasons set out hereinafter, could not be included in the cost of construction for purposes of allowing depreciation. The amount was paid because the assessee had committed a breach of the rules and had made illegal erections. Section 184 of the Cantonment Act makes such acts punishable with fine which may extend to Rs. 500. Section 185 empowers the Board to stop such erections and demolish them. But, instead of doing so, the first proviso to s. 185 permits the Board to accept by way of compensation such sum as it thinks reasonable instead of requiring the owner-defaulter to demolish the construction or to alter it. Section 185 does not give any indication that on a composition being effected by the Board the offence committed under s. 184 is wiped out. In the case of Biswabahan Das v. Gopen Chandra Hazarika, AIR 1967 SC 895, it has been held that the effect of a composition of an offence, unless there is express provision to that effect, does not amount to an acquittal of the offence. The payment of the compensation fee does not vindicate the character of the person charged with the offence. This being so, the mere payment of the composition fee did not absolve the assessee from the offence created by s. 184. The payment that was made was by way of penalty for contravention of a law and as such could not be added to the cost of the erection of the building or the swimming pool. The second reason which suggests itself to us, although we express no final opinion about that, is that the composition fee was paid after the swimming pool and certain parts of the building had been created. It is difficult to hold that s. 32(1)(v) permits the inclusion of payments of this nature which have been incurred in order to save the constructions from demolition, after they have been constructed in breach of some statutory provision. But, as indicated earlier, it is not necessary to base our decision on this line of reasoning. So far as question No. 8 is concerned, the assessee claimed that the expenses incurred for painting and water proofing of the roof, etc., of the conference hall should be included in the cost of the assessee for constructing the conference hall for purposes of allowing depreciation. The Tribunal has refused to do so on the view that these expenses were incurred after the building had already been created. The approach of the Tribunal does not appeal to us. A building is not complete till such time that finishing touches have been given to it so as to make it presentable and useful for the purpose for which it was constructed. In the case of a construction of the type with which we are concerned, unless the painting job is completed and water proofing has been carried out, its utility and attraction as a conference hall would be diminished. Shri Ashok Gupta appearing for the department has urged that the assessee had already started using the conference hall when the expenditure was incurred and as such this amount could not be added to the cost of construction for purposes of s. 32(1)(v). We are unable to agree with this contention. For purposes of calculating the depreciation under s. 32(1)(v) the total cost of the new building has to be taken into account. It can hardly be disputed that a newly erected building has to be painted and made water proof in order that it may become useful for the purpose for which it was constructed. The mere fact that the assessee had started using the conference hall earlier could not prevent the addition of these amounts to the total cost of construction. Our attention was drawn to the finding of the AAC that the painting and water proofing that was done was in the nature of repair. We have carefully read the order of the AAC and find that this contention is unfounded. The AAC disallowed the expenditure on the ground that the amount incurred was for giving finishing touches of a superficial nature to an already existing building. We fail to understand how the painting and water proofing of a conference hall can be treated as being of a superficial nature. Painting and water proofing ar??? essential for completing the conference hall so as to add to its utility and appearance.

13. We, accordingly, answer the first and third questions in the affirmative, in favour of the assessee and against the department. The second question is answered against the assessee and in favour of the department. The fourth question is answered by saying that the computation had to be done in accordance with r. 19A. The fifth question is answered by saying that the loans taken by the assessee could not be deducted while computing its capital which had to be done under r. 19A and not r. 19. The sixth question is returned unanswered. The seventh question is answered in the affirmative, in favour of department and against the assessee. The eighth question is answered by saying that the amount of Rs. 26,635 should have been added to the cost of erection for purposes of calculating the assessee's claim for initial depreciation under s. 32(1)(v) of the Act. In the circumstances, parties shall bear their own costs.