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The Collector of Kistna Vs. Sreemanthu Raja Yarlagadda Sivarama Prasad Bahadur, Zamindar of Challapalli - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1938Mad33; (1937)2MLJ744
AppellantThe Collector of Kistna
RespondentSreemanthu Raja Yarlagadda Sivarama Prasad Bahadur, Zamindar of Challapalli
Cases ReferredSecretary of State v. Sham Bahadur I.L.R.
Excerpt:
.....a better method but thought that the nett income should have been multiplied by 30. many of the reasons which he gave for adopting the figure 30 in preference to the figure 20 do not at all commend themselves to us. 5. applying these principles to the cases in hand we find that both the land acquisition officer and the learned district judge failed to make any deduction from the gross income on account of the costs of a revenue establishment. 7. the government appeals have thus succeeded in part, though not on the grounds urged, while the cross-appeals have failed......of the property compulsorily acquired, if paid twenty times the annual rental, would get a 5 per cent, return upon his money (5 per cent, of any given amount being the 1/20th of it). there is another assumption upon which this rule rests, namely, that the return expected from immovable property is 5 per cent, and that therefore if the rental is capitalised at twenty years' purchase, the owner would be 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. in harish chunder neogy v. secretary of.....
Judgment:

Newsam, J.

1. The short question arising for decision in all these appeals is what is the proper method of valuing the melwaram interest in land which is being acquired for public purposes. The method adopted by the Land Acquisition Officer in these cases was to deduct the proportionate peishkush from the melwaram revenue and then to multiply the nett income thus found by 20. The learned District Judge was unable to find a better method but thought that the nett income should have been multiplied by 30. Many of the reasons which he gave for adopting the figure 30 in preference to the figure 20 do not at all commend themselves to us.

2. These appeals have been filed by Government with the object of restoring the award passed by the Land Acquisition Officer. Cross-appeals have also been filed by the Zamindar.

3. Now, it seems to us that the principles which should be applied in assessing the capital value of the melwaram interest in land may be thus stated. It is necessary to start with the one known fact--the gross income of the zamindar from the land which is being acquired. The next step should be to ascertain the nett income. This can be done only roughly by deducting a proportion of the peishkush payable by the Zamindar to Government and also a proportion of the cost of revenue collection and administration. Neither calculation presents any real difficulty. We think that it would be fair and equitable to make a deduction of 10 per cent, of the gross income towards the expenses of a revenue collecting and administrative staff. Having thus ascertained the nett annual revenue of the Zamindar from the land being acquired, it must be capitalized by computing the number of years' purchase. Twenty times the nett 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, that is, on the date of the notification under Section 4 of the Act. The higher the rate of interest on that date, the fewer will be the number of years' purchase. Twenty times the nett income would be fair if the prevailing rate of interest was 5 per cent, but if it was 2|- per cent, nothing less than 40 times the net income would be adequate compensation.

4. Of course, to the figure thus arrived at must be added the usual 15 per cent, for compulsory acquisition.

5. Applying these principles to the cases in hand we find that both the Land Acquisition Officer and the learned District Judge failed to make any deduction from the gross income on account of the costs of a revenue establishment. Further we find that the notifications in these cases were made at the end of 1933 in some cases and at the beginning of 1934, in others, when the rate of interest on gilt-edged securities was approximately 3| per cent. In the circumstances we are not prepared to interfere with the District Judge's order adopting 30 years' purchase as the proper estimate of the capital value of the melwaram, but the income to be multiplied by 30should first be reduced by 10 per cent, in order to arrive at a true estimate of the Zamindar's income by allowing for essential establishment charges.

6. We direct therefore that 10 per cent, be first deducted from the gross income to allow for collection charges, then proportionate peishkush should be deducted and the result multiplied by 30. Finally 15 per cent, should be added as compensation for compulsory acquisition.

7. The Government appeals have thus succeeded in part, though not on the grounds urged, while the cross-appeals have failed. In the circumstances, each party will bear his own costs in appeals and in the memoranda of objections.

8. Let these cases fall into two batches (one batch: Appeals Nos. 290 to 295 of 1935 and second batch: Appeals Nos. 354 to 391 of 1935) for the purpose of computing the fees between the Government and the Government Pleader.

Venkatasubba Rao, J.

9. I agree.

10. The only real question that these appeals raise is, what is the number of years' purchase at which the rental of the lands acquired should be capitalised? The contention of the learned Government Pleader that there prevails a rule, to be rarely departed from, that no more than twenty years' purchase should be allowed, does not rest upon any sound principle. What does the 20-year purchase rule imply 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. Thus, if Rs. 500 represent the annual return and the 20-year rule is adopted, the capitalised value of the property would be Rs. 500 X 20, that is, Rs. 10,000. Now let this sum be invested at 5 per cent, interest. It would yield a return of Rs. 500. Therefore the 20-year purchase rule rests upon this assumption: The owner of the property compulsorily acquired, if paid twenty times the annual rental, would get a 5 per cent, return upon his money (5 per cent, of any given amount being the 1/20th of it). There is another assumption upon which this rule rests, namely, that the return expected from immovable property is 5 per cent, and that therefore if the rental is capitalised at twenty years' purchase, the owner would be 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. In Harish Chunder Neogy v. Secretary of State 11 C.W.N. 875 and Secretary of State v. Shanmugaraya Mudaliar (1893) L.R. 20 I.A. 80: I.L.R. 16 Mad. 369 the rentals were capitalised at twenty-five years' purchase and in Secretary of State v. Sham Bahadur I.L.R.(1884) 10 Cal. 769.

11. The return from landed property, generally speaking, reflects the prevalent rate of interest on money investments. One of the criteria in determining the compensation to be awarded is the market-value of the land at the date of the publication of the notification under Section 4(1) (Section 23, Land Acquisition Act). In the present cases the relevant notifications were published towards the end of 1933 and the beginning of 1934. The Government of India loan at that time took the form of a 3 1/2 per cent, issue liable to income-tax. The issue price was reckoned at Rs. 96 per cent, and the loan was repayable at par between 1947 and 1950. When there is definite evidence that the actual return on investments is 3 per cent, it would be wrong to adopt the arbitrary rule of the twenty years' purchase. The return having been ascertained, the years' purchase is arrived at by dividing 100 by the figure of such return. In the present cases the return is about 3 1/2 per cent, and the number of years' purchase which it would be right to allow, would therefore be about 30.

12. The learned District Judge has capitalised the rentals at thirty years' purchase and with his conclusion we agree, although, as pointed out by my learned brother, his reasons are wrong.

13. The rent that is to be capitalised is the net and not the gross rent and the question arises, what should be the deduction on account of collection charges and other contingencies? Here again there is ho uniform rule, but having regard to the nature of the property acquired, we think that besides the peishcush, 10 per cent, of the gross collections may be deducted on account of outgoings.

14. On this basis the computation should be made and to that sum will be added the statutory allowance of 15 per cent.


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