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R. Ranganna Vs. the Special Land Acquisition Officer, City Improvement Trust Board, Mysore and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtKarnataka High Court
Decided On
Case NumberRegular Appeal No. 200 of 1952-53
Judge
Reported inAIR1959Kant123; AIR1959Mys123
ActsLand Acquisition Act, 1894 - Sections 4, 4(1), 23 and 54; Defence of India Act - Sections 19; Defence of India Rules - Rules 75(A) and 81(2); Rent Control Order
AppellantR. Ranganna
RespondentThe Special Land Acquisition Officer, City Improvement Trust Board, Mysore and ors.
Appellant AdvocateR. Venkatesamurthy, Adv.
Respondent AdvocateS.A. Mahish, High Court Govt. Pleader and ;R.T. Ramaswamy, Adv.
Excerpt:
.....or later be reduced to nothing. it is clearly laid down in the case already cited that it has long been the practice of the courts in this presidency to calculate profits from any form of landed property as equal to the profits made by investing money in gilt-edged securities. for whatever may be said with regard to a melvaram interest in a zamindari land or a vacant site, 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 .in a case that has been decided since air 1941 mad 684 to which one of us was a party, viz. this view is clearly established as we can see from various rulings. it is difficult to say that any one of them is by itself a perfect method. in fixing the..........to a melvaram interest in a zamindari land or a vacant site, 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 ..... in a case that has been decided since air 1941 mad 684 to which one of us was a party, viz. ilr (1943) mad 127: (air 1942 mad 739), it was held that thirty years' purchase did not give the probable value of the land. it was found on the facts of that case that twenty years' purchase gave the nearest practical approach to the value of the land.'16. the next case relied on by the learned advocate for the appellant is that reported in air 1949 mad 171. the property in that case was a site with a building thereon and wells and trees, situated in the.....
Judgment:

S.S. Malimath, J.

1. This is an appeal under Section 54 of the Mysore Land Acquisition Act, 1894, filed by Claimant No. 1, against the award passed by the Additional District Judged. Mysore, on 19-7-1952 in Misc. Case No. 62 of 1946-47. The property acquired consists of house properties hearing door Nos. 122, 122/1, 122/2 and 70 in Block No. 53, Devaraja Mohalla, Mysore. The Special Land Acquisition Officer estimated the fair market value of the properties at Rs. 12,500/-

He awarded this amount together with statutory allowance at 15 per cent. On reference, the District Judge enhanced it to Rs. 33,600/-. He awarded the excess amount of Rs. 21,0007- together with the statutory allowance at 15 per cent., interest at 6 per cent per annum and costs. The appellant before us Claims an extra compensation of Rs. 16,555 together with statutory allowance of Rs. 2,483-4-0. The respondent (Special Land Acquisition Officer) has, however, filed cross-objections contending that the excess amount awarded by the District Judge is wrong and that it should be disallowed together with the statutory allowance and interest.

2. The learned Advocate for the appellant firstly contends that the rental fixed for the properties is too low. He next argues that the method of capitalisation adopted by the learned District Judge is also not correct. The total amount Claimed by the parties by way of compensation comes to Rs. 50,155/-. It may be noted here that in the Claim put forward by the parties before the Land Acquisition Officer, the amount Claimed was Rs. 40,000/-only. Hence they cannot be allowed to Claim anything in excess of this sum.

3-9. It appears that the Land Acquisition Office* based his conclusions on the rental value statement furnished by the Municipality and held that Rs. 750/- per annum was the average letting value. He capitalised on this basis by multiplying it by 16 2/3 (representing the number of years' purchase) and thus estimating the value of the property as Rs. 12,500/-. The learned District Judge rejected this basis and estimated the letting value on the basis of the oral evidence in respect of the rent realised for different portions of the properties. (His Lordship after discussing the oral evidence proceeded to state as follows :}

10. Considering the evidence above discussed, the learned District Judge has come to the conclusion that the rent yielded by the premises was Rs. 168/- per month. The learned Advocate for the appellant, however, tries to say that the same is non correct. His contention is not that there was anything wrong in the appreciation of evidence but that the rents actually realised at the date of acquisition do not represent Hie correct figures that the property would get in a free and open market.

The suggestion is that owing to the restrictions and controls placed by law upon renting out of properties, the rental values have been suppressed and are not allowed to rise. He, therefore, urges that for the purpose of fixing the fair market price, the rent to he taken note of is the rent that the property would fetch in a free market where there are no restrictions artificially imposed by law.

In this connection, reliance is placed on a ruling in Mahomed Ekramal Haque v. The Province of Bengal, reported in : AIR1950Cal83 . It was a case where a building was requisitioned under Section 19 of the Defence of India Act read with Defence of India Rule 81 (2) (bb) and R. 75 (A) of the rules. The assessment of compensation by an Arbitrator appointed for the purpose, was challenged before the High Court as being wrong, since it was based on the artificially controlled rent. Their Lordships of the High Court observe:

'In deciding upon fair rent, for the purpose of Section 23, it must be a notional fair rent of a hypothetical tenant, and the assumption of such notional fair rent must be based upon a consideration which does not take into account restrictions temporarily-imposed by any restrictive executive order or legislation like the Rent Control Order etc. The assessment in practice should be as if it was a house of a like a nature let out for the first time to a tenant who is not compelled to take it up and by a landlord who is not compelled to let it out. The practical method will be to assess a rent as if it was a new house for the first lime let out on that date.'

These observations, in principle, are entitled to much weight. But, with all respect, we have to mention that, in our opinion, it is difficult to work out in practice the theory of fixing the rent of a house of a like nature in the same locality let out for the first time to a tenant on the date or acquisition.

At any rate, in the present case, there is no material on record to estimate to what extent the rentals would have risen if there were no legal restrictions at the material date. In the absence of any such material, it would be Mile to fix mere arbitrary figures for the increase of the rent. In our opinion, the contention in this behalf is not of much value. The rent of Rs. 168/- per month fixed by the District Judge appears to be reasonable and does not need to be enhanced.

11. The next point for consideration is about capitalisation. The District Judge has proceeded to take the rental for ten months as the annual letting value on the assumption that two months' rent would ordinarily be required for defraying the expenses regarding repairs, municipal taxes and such other incidental expenses.

There is no dispute on this point. He takes twenty years' purchase as the proper basis for calculation and fixes the reasonable market value at Rs. 1,680 x 20 equal to Rs. 33,600/-. The contention of the Advocate for the appellant is that instead of twenty, thirty three and one-third years' purchase should have been taken as the basis for calculation.

In this connection, he relies on the rulings of the Madras High Court in Land Acquisition Officer v. Subba Rao AIR 1941 Mad 684 and T. Radha-krishna Chettiar v. The Province of Madras, AIR 1949 Mad 171. Prima facie, these rulings seem to support his contention. But we find that there are divergent rulings on the point by the Madras High Court itself. We further find that the rulings of the other High Courts are also varied and in some respects' divergent on this point. It is, therefore, necessary to consider the case law some what closely.

12. In the case of Collector of Kistna v. Sree manthu Raja Yeralagadda Sivarama Prasad, reported in AIR 1938 Mad 33. Justice Newsam observes :

'Twenty times the net revenue from property has in the past been commonly taken to be the capital value of any property or interest in property and the true justification for this was that approximately 5 per cent was the prevalent rate of interest. But it is clear that the number of years' purchase must depend upon the rate of interest prevailing on gilt-edged securities at the time of the acquisition i.e., on the date of the notification under Section 4 of the Act.'

In the same case, this point was further made clear by Venkatasubba Rao, J. explaining the term '20 years purchase'. His Lordship observes:

'It means that the value of the property, might be taken to be a capital sum which, if invested at the rate of 5 per cent per annum, would yield an income equivalent to the rent .... There is another assumption upon which this rule rests, viz. that the return expected from immovable property is 5 per cent that, therefore, if the rental is capitalised at 20 years' purchase, the owners will he properly compensated for the acquisition. It will thus be seen that the rule of the number of years' purchase is not a theoretical or legal rule, but depends upon economic factors, such as the prevailing rate of interest. That there is no uniform or rigid principle in regard to the number of years' purchase is illustrated by several decisions.'

The property in this case was the Melwaram interest in certain zamindari lands. It was not a land with a building. Hence it was a simpler case. According to Newsam J. the fixing of the number of years' purchase was on the assumption that the prevalent rate of interest was approximately 5 per cent. It was further explained that the rate of interest prevailing on gilt-edged securities at the time of acquisition should be taken as the basis for fixing the prevailing rate.

The principle appears to be based on the assumption that the property goes on continually yielding the same income as at the date of the acquisition. Whatever the justification for relying on such an assumption in the case of agricultural lands, it would not be safe to extend the same to a case of land with building because a building is liable to speedier decay and its value may sooner or later be reduced to nothing.

The second observation of the learned Judge is that the prevailing rate of interest should be fixed on the basis of the prevailing rate on the gilt-edged securities. The rate of interest on gilt-edged securities appears to have been adopted presumably for the reason that it goes on continually yielding the same income perennially. Their Lordships have, no doubt, noted the fact that even the rate of interest on gilt-edged securities varies from time to time.

That is why their Lordships have suggested that the rate prevailing at the date of the acquisition should be taken as the prevailing rate for the purpose of each particular case. With all this, we notice, with great respect, that tome more factors still remain to be taken note of in applying such a principle to cases of lands with buildings. We will discuss them at a later stage.

13. The above case was followed in AIR 1941 Mad 684, In that case, the properly was a site within building situated in the Municipality of Calicut. Referring to the above case, their Lordships observe:

'It is clearly laid down in the case already cited that it has long been the practice of the Courts in this Presidency to calculate profits from any form of landed property as equal to the profits made by investing money in gilt-edged securities.'

But we are unable to find such a statement of law in that case. There is no further discussion of the principle itself nor have any reasons been pointed out for extending the principle hid down in the former case. to the case of a land with building.

14. In the case of Sub-Collector, Rajahmundry y. Parthasarathy, AIR 1942 Mad 739, the property involved was situated in the town of Rajahmundry. The District Judge had fixed the valuation by adopting twelve years' purchase whereas the claimant wanted the calculation to be made upon thirty years' purchase. There was no evidence upon which it could be decided that any particular number of years' purchase should be taken as the basis. On appeal, their Lordships observed :

'The number of years' purchase which should be adopted in a given case must vary with individual cases and will have to be decided upon the material placed before the Court.....In the absence of evidence on the point, we think that twenty years' purchase should be adopted as the basis for fixing the market value. This is ordinarily adopted as the basis and we see no reason to depart from the rule of ordinary practice.'

The cases reported in AIR 1938 Mad 33 and AIR 1941 Mad 684 were brought to the notice of their Lordships. The former was distinguished on the ground that it dealt with compensation in respect of the Melwaram right oi a zamindar on Zamindari property. They seem to he of opinion that, in the latter case, the principle of the former was unnecessarily extended to a site with building. Although they commented upon the opinion of the Dist. Judge who seemed to think that twenty years purchase was the maximum compensation payable, they themselves ultimately held:

'In the present case, we think we shall not be erring on the wrong side if we say that the market value should be fixed by capitalising the net annual income at twenty years' purchase.'

15. The property involved in the case of Revenue Divisional Officer, Trichinopoly v. Section Varada-chari, reported in : AIR1944Mad271 , was a land in the Srirangam Municipality. The District Judge opined that the market value should be estimated by capitalising the annual profits at thirty years' purchase. The two cases of the Collector of Kistna and the Land Acquisition Officer, Calicut, were considered. Referring to the former case, it was observed :

'Prior to that decision, the general rule adopted both in the Courts in India and in England was to estimate the value of the land -- in cases where direct evidence was not obtainable -- by multiplying the annual profits by twenty unless special circumstances existed which indicated that the value should be calculated as some different multiple of the annual profits.'

Noticing that the principle laid down in the case of 'Collector of Kistna' related to a Melvaram estate, and commenting on the extension of that principle to a land with building in the case of 'Land Acquisition Officer, Calicut', their Lordships observed :

'It is not necessary for us to express any view on this departure from past practice: for whatever may be said with regard to a melvaram interest in a zamindari land or a vacant site, 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 ..... In a case that has been decided since AIR 1941 Mad 684 to which one of us was a party, viz. ILR (1943) Mad 127: (AIR 1942 Mad 739), it was held that thirty years' purchase did not give the probable value of the land. It was found on the facts of that case that twenty years' purchase gave the nearest practical approach to the value of the land.'

16. The next case relied on by the learned Advocate for the appellant is that reported in AIR 1949 Mad 171. The property in that case was a site with a building thereon and wells and trees, situated in the Kumbakonam Municipality. It is a very considered judgment by Rajamannar, Offg. C. J. (as he then was) where the above two cases and many others have been fully discussed. It was finally observed :

'After a consideration of all these cases it appears to us that both on principle and on account of the similarity of facts, the valuation in this case should follow the basis adopted by King and Patanjali Sastry JJ. in AIR 1941 Mad 684.'

There, as here, the property acquired was a land with building thereon. The number of years' purchase was arrived at by taking into account the interest yielded by Government securities at the time of the notification under Section 4(1) of the Act which was accepted to be 3 per cent per annum. The capitalisation was, therefore, fixed at thirty-three and one-third years' purchase.

It appears that their Lordships were not setting down any new principle but that they were merely following the basis adopted in AIR 1941 Mad 684 on the ground of similarity of facts. In that case, reliance was placed on the observations in AIR 1938 Mad 33, which we have referred to above.

In this case of Radhakrishna Chettiar, Rajamannar C. J. noticed that in the case of Sub-Collector, Rajahmundry, the earlier decision of the Land Acquisition Officer, (SIC) was not followed on the ground that the principle laid down in the case of the Collector, Kistna, which related to a melvaram estate was unnecessarily extended to a site with building. But his Lordship's own observation on this point is that in the case of Sub-Collector, Rajahmundry, no express dissent has been expressed by their Lordships from the decisions in either of the two cases viz. Collector of Kistna and the Land Acquisition Officer, Calicut.

17. This case was followed by the Hyderabad High Court in Govt. of Hyderabad v 'Guvindu Bai, AIR 1950 Hyd 70, and also in Ramsetty Durgiah v. Government, AIR 1956 Hyd 175. Beyond accepting the above ruling of the Madras High Court, we do not find any discussion of the principle embodied in the method of calculation or tho number of years' purchase in either of these cases. Similarly, the Andhra High Court also followed the same Madras ruling vide China Kotayya v. Sub-Collector of Bezwada : AIR1955AP286 .

18. There are some rulings of the Mysore High Court which we may consider. Mrs. Jeevarathamma v. Chairman, City Improvement Trust Board, Mysore, R. A, No. 126/45-46 is an unreported case decided by P. Venkataramana Rao C. J. and P. Medapa J. (as he then was) on 3-1-47. The District Judge had capitalised the rental value on the basis of sixteen and two-thirds years' purchase. In appeal, their Lordships observed :

'We are of opinion that the rule of number of years' purchase to be adopted in any particular case will depend upon a number of considerations, one of which is the rate of interest prevailing in the market, particularly the rate of interest on Government securities.'

It appears that their Lordships took all these circumstances into consideration while fixing the value of the property in that case by adopting 25 years' purchase for the purpose of capitalisation. N. Section Nagarajiah v. Chainnan, City Improvement Trust Board Mysore, R. A. No. 1/51-52 is another unreported case to which one of us was a party. It was decided on 20-12-55. The properties involved in that case were also house properties in Block Nos. 53 and 54 of Devaraja Mohalla, Mysore. It may be noted that the properties in the present case are also situated in Block No. 53 of the same Mohalla. Referring to the number of years' purchase, it has been observed ;

'It appears to us that the deduction of three months' rent is quite fair and we see no reason to depart from the mode of capitalisation, generally though not invariably, followed by our High Court i.e., of multiplying the net annual rent by 16 2/3.'

Rajasekhara v. Chairman, City Improvement Trust Board, Mysore, reported in AIR 1957 Mys 20, is another case where the number of years' purchase came to be considered by R. Venkataramana C. J. and Padmanabhiah J. Their Lordships observed:

'In a growing town where the demand for shops or buildings to any on business is increasing and there is certainty of income if leased out, the rental value is treated as important and an index to the market value of the property.'

Their Lordships ultimately considered that 18 years may be deemed the appropriate period for the purpose of capitalising the amount of rent in that particular case. Our attention is also drawn to the fact that there are many more cases of the Mysore High Court where 20 years' purchase has been adopted as the basis for capitalising the rent e.g. It. A. No. 70/45-46. (unreported).

19. A careful consideration of the foregoing decisions shows that the number of years' purchase is not uniform in all cases. It differs from case to case and from time to time and has been fixed with reference to the facts of each case. This view is clearly established as we can see from various rulings. In Secy. of State v. Sital Prasad AIR 1938 Pat 266, it has been observed:

'The mere fact that the High Court has in a particular case given 16 years' purchase to a person claiming compensation under the Land Acquisition Act is not sufficient basis on which as a matter of law and principle the High Court should give 18 years' purchase in all such cases. The matter de-ponds entirely upon the circumstances of each case.'

To our mind, it is quite clear that the question has to he decided with reference to the facts and circumstances of each case. It would not be possible to formulate any one rule for being followed uniformly in respect of all types of cases.

20. For the purpose of fixing the market value of a property, there are several methods of valuation. Each one has its own merits and demerits. It is difficult to say that any one of them is by itself a perfect method. It is not now our purpose to consider the relative merits of these methods since, in the present ease, the parties are agreed that capitalisation on the rental basis is the only method available to this case in view of the evidence on record. We are, therefore, confining our attention only to the question as to whether the number of years' purchase should be fixed on the basis of the prevailing rate of interest on gilt-edged securities as urged for the appellants.

21. We have already noticed the difficulty of applying this method to the case of a site with building thereon. In view of the fact that every building will have a limited span of life depending on its age, materials, nature of use etc., it cannot be taken that a building would continue to yield the same rent for all time. Sooner or later, when the structure may deteriorate and come down it will cease to have any rental value as a builiding.

Besides this, It is quite possible that two buildings of a similar nature and extent yielding the same rent may be of different ages with the result that one of them may have a much shorter life than the other. A calculation purely on the basis of the prevailing rate of interest on gilt-edged securities will show the same market price for both of them. Such a result is obviously inaccurate in view of the future life of the two buildings.

This shows that, in addition to the present yield by way of rent, the future life of the building is another factor to be taken into consideration in fixing the number of years' purchase. Similarly, two houses bringing the same rent in the same locality may have different materials used for their structures. It may be that, although they may bo of the same area, one of them may have very sound and valuable materials and may also have artistic fineries while the other may be a simple building with cheap materials.

It is not unlikely that both such buildings may yield the same rent. A difference in the materials used will not necessarily make a difference in rent except when the materials afford additional comfort. But when a property is to be sold, a vendee is certainly prepared to pay a higher price to a more substantial building with valuable materials.

22. From the foregoing, it will be clear that the yield by way of rent in respect of the property particularly a property which consists of a building is not the only factor that has to be taken into consideration while fixing the market price. We have quoted above at least two other factors such as the materials used, the future life etc., which also go to affect the market price.

The method of calculating the market price on the prevailing rate of interest on gilt-edged securities ignores every other factor except the yield by way of rent, After a careful consideration of the foregoing, we reach the conclusion that it is neither , sound nor fair to arrive at the market price merely on the basis of the interest on gilt-edged securities.

It is only one of the many factors to be considered though possibly it is an important factor. In fixing the number of years' purchase, due consideration will have to be paid to this as well as to the other factors obtaining in each particular case. There cannot be a uniform rule in this behalf.

23. Coming to the facts of the present case, we have already held that the monthly rent in respect of the schedule property was Rs. 168/- at the material date. The learned District Judge remarks that ten months' rent was agreed to be taken as the annual rent making allowance for taxes, collection charges, repairs, upkeep etc. We, therefore, do not propose to discuss whether this allowance is or is not correct.

The annual rent will be taken to be Rs. 1,680/-. It is in evidence that this property was-about 50 or 60 years old. R. W. 3, the Assistant Engineer, who had inspected this property, has prepared his estimate of the price. According to his note, 'it is an old but massive building. Due to age, the building has undergone natural deterioration. Although ordinarily a depreciation of 10 per cent should have been allowed, looking to the present condition of the building a depreciation of 40 per cent is allowed and it is reasonable.' In view of all these considerations, we think that the lower Court was right in adopting twenty years' purchase for the purpose of capitalisation. We held that the amount of Rs. 33,600/- awarded by it is fair.

24. The appeal is dismissed with costs. The cross-objections are also dismissed with costs.

Nittoor Sreenivasa Rau, J.

25. I agree.

26. Appeal dismissed.


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