Decided on December 15,1954



- (1.) THESE are two appeals under S. 54, Land Acquistion Act (1 of 1894) against the awards passed by the learned Subordinate Judge of Vijiawada on reference under Ss. 18 and 19 of the said Act. (2) Appeal No. 223 of 1950 is an appeal by the second petitioner in O. P. No. 38 of 1942 (Sub-Court, Vijiawada) while Appeal No. 337 of 1950 is an appeal arising out of the same O. P. and filed by the respondent therein (Sub-Collector, Vijiawada Referring Officer). There is also a Memorandum of Cross Objections by respondents 1 and 3 to 5 in the same O. P. filed in Appeal No. 337 of 1950. Appeal No. 223 of 1950 is concerned with the acquisition of N. T. S. No. 339/6-A and 339/6-B. THESE acquisitions have been made at the instance of the Commissioner of Vijiawada Municipality for widening what is known as the Tammanavari lan. Out of 339/6-A, 93 square feet have been acquired. It is a vacant site without a structure. Out of 339/6-B which consits of a site and a structure with three floors, only a portion has been acquired. In this portion the site of only ground floor have been acquired leaving the first and second floors overhanging the land after the acquisition. With reference to 339/6-A, the Sub-Collector Vijiawada awarded a sum of Rs. 40.00 per square yard, while the learned Subordinate Judge granted Rs. 100.00 per square yard, but the appellant claims compensation on the basis of Rs. 1-1-0 being the annual net income, per square feet. In regard to 339/6-B, the market value was fixed at Rs. 30.00 per square yard by the Sub-Collector, while the learned Subordinate Judge awarded a sum equal to twenty five years purchase on the basis of the capitalisation of the annual net income. (3) Now, as regards 339/6-A the value of the neighbouring sites is evidenced by Exs. D-4, A-1, A-3, A-12 and A-16. The claimant seeks Rs. 225.00 per square yard. According to Ex. D-4, a sale deed dated 2-12-1939 for a site to the south of Sivalayam street and 70 yards away from the site acquired, a square yard works out at Rs. 47.00. The claimant alleged that the site was the subject matter of a civil dispute, and, therefore, did not fetch a good price. Exhibit A-1 dated 28.4.1941 shows a price of Rs. 168.00 per square yard. According to Exs. A-12 and A-16, a square yard in the neighbourhood works out at Rs. 250.00 to Rs. 300.00. It is difficult to see on what basis the learned Subordinate Judge proceeded in fixing Rs. 100.00 per square yard. On the evidence available, it seems to us that a price of Rs. 150.00 per square yard would be reasonable, having regard to the values as disclosed by the sale deeds above referred to. In regard to 339/6-B the appellant attacks the mode of valuation. He says that though the learned Judge found that Government gilt-edged securities were found to fetch an interest of 3 per cent. per annum in the year of acquisition instead of capitalising the income on the basis of 33.1/3 times the rental value, be gave only on the basis of 25 years puchase. Again it is objected that the learned Judge was wrong in deducting five months rental value in arrving at the net annual income instead of three months rental value which is stated to be the usual practice. In doint this, the learned Judge seems to have thought that the income-tax payable by the parties on the rental should also be deduced. It is stated that there is no evidence before the Court that the appellant is an income-tax assessee. However it may be, it seems to us that there are, no adequate reasons for deducting five months rental out of the gross annual income to arrive at the net rental value. (4) In regard to the other branch of the arguments as regards the mode of capitalising the income, reliance is placed by the learned counsel for the appellant on the decision in -- Collector of Kistna v. Zamindar of Challpalli, AIR 1938 Mad 33 (A) and it is contended that the learned Judge having come to the conclusion that gift per annum in the relevant year, ought to have fixed the value at 33.193 times the annual rental. Before we proceed to deal with this argument we would like to observe that the evaluation of the market value of a portion of a structure on the basis of the capitalisation of the proportionate rate of rent seems to us altogether inappropriate. Our attention has not been drawn to any case where the market value was determined with reference to the proportionate rent derivable from a portion of the structure when such a portion had been acquired. It is one thing to assess the value of a building with reference to the annual rental realised person. It is quite another thing, we think, to .... the value of a part of a building with reference to the proportionate rate of rent. But this mode of approach has not been objected to by the parties and we do not, therefore, propose to adopt a different method in this case. The earliest of the cases to which reference has been made in the course of the argument is the decision in AIR 1938 Mad 33 (A). There the Court was concerned with the promise method of valuing the melwaram interest in the land which was the subject matter of the acquisition. Newsam J., stated what according to him were the principles whcih should be applied in assessing the capital value of that interest. He says : "It is necessary to start with the one known act -- the gross income of the Zamindar from the ... which is being acquired. The next step should be to ascertain the net income .......... Neither ..... presents any real difficulty. We think .... would be fair and equaitable to make a action of ten per cent. of the gross income .... the expreses of a Revenue collecting and aministrative staff. Having thus ascertained the net annual reversion of the Zamindar from theland being acquired, must be capitalised by computing the number of years purchase. Twenty times the net revenue of property has in the past been commonly seen to be the capital value of any property or ..... in property and the true justification for ..... was that approximately five per cent, was the equvalent rate of interest. But it is clear that the number of years purphase must depend upon the rate of interest premailing on gilt-edged secruities at the time of the ..........., i.e., on the date of the Notification interest on that date, the fewer will be the number of years purchased." venkatasubba rao, in his concurring judgment put the matter thus : "The only real question that these appeals ..... is what is the number of years purchase at which the rental of the lands acquired should be ...pitilesed? The contention of the learned Government Pleader that there prevails a rule to be rely departed from that no more than twenty years purchase should be followed does not rest .... any sout principle. What does the twenty years purchase rule imply ? It means that the value of the property might .... taken to be a capital sum, which if invested at be rate of five per cent annum, would yield income equivalent to the rent. X X X X X X Therefore, the twenty years purchase rule ests upon this assumption ; the owner of the property compulsorily acquired if paid twenty times be annual rental, would get a give per cent return upon his money (five per cent, of any given amount being the 1/20th of it). There is another assumption upon which this ... rests, namely that the return expected from immoveable property is five per cent, and that, therefore, if the rental is capitalised at twenty years purchase, the owner would be properly impenstate for the acquisition. It will thus be on that the rule of the number of years purchase not a theoritical or legal rule, but depends upon economic factors, such as, the prevailing rate of interes." He also agreed that a deduction of 10 per cent of the gross income towards the expenses of collection and administration should be made to arrive at the net income. (5) The next case to which reference was made is a decision of theri Lordships King J. and Patanjali Sastri J., (as he then was) in -- Land Acquisition Officer, Calicut v. Subba Rao, AIR 1941 Mad 684 (B). The subject matter of the acquisition there was a plot of land with abuilding standing upon it. The learned Subordinate Judge calculated the net rate, of rental and capitalised the sum at 33 1/3 years purchase purporting to follow and apply the decision quoted above. The learned Judges in upholding his view say this : "It is clearly laid down in the case already cited that it has long been the practice of the Courtsx in this Presidency to calculate the profits from any form of landed property as equal to the profits made by investing money in gilt-edged securities. X X X We are of opinion that the learned Subodinate Judge was right in following the authority of "Collector of Kistna v. Zamindar of Challapalli (A), and in view of the fact that there was evidence before him that the rate of interest obtainable on Government securities in 1935 was only 3 per cent. The method of capitalisation by taking 33 1/3 years purchase is mathematically correct." Dealing with the Memorandum of Cross Objections in the case, the learned Judges proceeded to say : "The main question raised in the Memorandum of Cross Objections is an objection to the procedure of Land Acquisition Officer and to a leser extent the procedure of the learned Subordinate Judge in refusing to recognise that the true rental value of the property acquired might not be something higher than the rent actually received by the claimant." (6) Now it is plain that the word not occurring in the passage extracted above is a misprint. The learned Judge evidently meant to say that the real rental value of a property may be something higher than the rent actually received by the claimant. Applying that principle to the facts of the case before them in which the evidence disclosed that in the building acquired the upper storey and one of the rooms below had collapsed, the learned Judge went on to say : "There is evidence that the reason for the collapse of the upper storey and of one of the rooms below was not any structural defect in the building itself, but the fact that a neighbouring building fell upon it, and this evidence has not been subject to any cross-examination. We think, therefore, that although this aspect of the case has not been dealt with in any detail in the evidence it is reasonably certain that a purchaser by expending whatever is necessary to put the building once again into proper order and restoring it to its original size, could obtain a rental considerably higher than Rs. 15.00. Of course, to do this, he would have to incur considerable expenditure, but we feel certain that the net result would be to his advantage. It is conceded that if in fact the present owner of the property has neglected it in such a way as not to derive the true economic rent from it, he should not be penalised on this account by his not being awarded the true market price. The true market price is what a purchaser would give with all possibilities of the pruchase present to his mind." (7) We are of opinion that the principle underlying this passage ought to be borne in mind in all such cases and that the ascertainment of the market price merely with reference to the actual rental value may not always lead to a proper result. For instance a newly built building in a pucca condition cannot be assessed at the same market value of an old building fetching the same rent. It seems to us, therefore, that where the value of a building is to be determined, regard must also be had to what may be called the expectation of life of the building in question. We must notice, however, that this method of valuation has not always been accepted without demur. In -- Sub-Collector v. Parthasarathy. AIR 1942 Mad 739 (C), also a Bench decision, Krishnaswamy Ayyangar J., observed that the number of years purchase must vary with individual cases and would have to be determined on the material placed before, the Court and thought that a basis of twenty years purchase should be adopted in the case before him, which related to the acqusition of a site. In doing so, he observed : "This is ordinarily adopted as the basis and we see no reason to depart from the rule of ordinary practice." The practice mentioned in this case is clearly at variance with that referred to in the Chellapalli case (A). Again in a subsequent ruling - Revenue Division Officer, Trichinopoly v. Varadachari, AIR 1944 Mad 271 (D), to which the Krishnaswamy Ayyangar J. was a party and in which the judgment of the Court was delivered by Horwill J., it was remarked : "It is difficult to accept the current rate of interest on gilt-edged securities as a safe guide to the multiple to be applied to the annual profits on ryotwari land." The next case to which our attention was drawn is the decision of -- Radhakrishna Chettiar v. Province of Madras, AIR 1949 Mad 171 (E). There the property acquired was a site with a building thereon and wells and trees. After discussing the rulings above quoted, their Lordships concluded as followed : "After a consideration of all these cases, it appears to as that both on pinciple and on account of the similarity of facts, the valuation in this case should follow the basis adopted by King and Patanjali Sastri JJ. in Land Acquisition Officer, Calicut v. Subba Rao (B). There as here, the property acquired was land with building thereon. The number of years pruchase was arrived at by taking into account the interest yielded by the Government securities at the time of the Notification under S. 4 (1) the Act. In the present case, it appears from the judgment of the Lower Court that it was not disputed that guilt-edged securities were carrying interest at 3 per cent, at the time of the acquisition. The annual rental value must therefore, be capitalised at 33 1/3 years purchase." (8) Though, as according to us, as stated above in all such cases the condition of the building and not merely its rental values should be taken into acccount as no evidence has been let in about it in the present case, we propose to apply the normal rule as laid down in Collector of Kistna v. Sivarama Prasad (A), and adopted and followed in Land Acquisition Officer, Calicut v. Subba Rao (B) and Radhakrishna Chettiar v. Province to Madras (E), because of the similarity of facts. We may observe however, that it is not to be applied as an invariable rule to all cases of valuation of immovable property of whatever description and condition. (9) In the result, we are of the view that the value of the property must be assessed at 33 1/3 years purchase on the basis of the yield from give edged securities in the year of acquisition having been 3 per cent. We also think that from ... gross annual of Rs. 400.00 in regard to 369 rent deductions should be made only of the months and not five months rental as has be done by the learned Subordinate Judge. This method of valuation will also apply to the plot and buildings of the other claimants who have filed the Memorandum of Cross Objections of Appeal No. 337 of 1950. The award of the lows Court will stand modified accordingly. The clause ants will of course be entitled to the statutory hancment of 15 per cent, to the value as above determined. Mr. Venkatarama Sastry for the appellant is Appeal No. 223 of 1950 also urged that the learned Subordinate Judges direction that the parties should pay and receive proportionate costs is erroneous and that his client is entitled to full costs as the Acquisition Officers determination of the compensation payable to him had been substantially modified by the learned Subordinate Judge. We see however no reason to interfere with the order as to costs. (10) But the costs awarded by the lower Court will be worked out on the basis of the amounts as modified by the above directions. (11) In A. S. No. 223 as also in the Memorandum of Cross Objections in Appeal No. 337 of 1950, the parties will pay and received proportionate costs, A. S. No. 337 of 1950 will be dimissed with costs. (12) Awar modified.;

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