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The State of Madras, Represented by the Collector of Madras Vs. M. Balakrishna Mudaliar - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai High Court
Decided On
Reported in(1968)2MLJ536
AppellantThe State of Madras, Represented by the Collector of Madras
RespondentM. Balakrishna Mudaliar
Cases ReferredState of Madras v. Mohammed Ibrahim
Excerpt:
- - certainly, the figure for capitalisation could well be adopted at the figure resulting from the division of 100 by the figure of investment return on secured investment, at the date of the section 4 (1) notification. 10. in the present case, therefore, we think we may well arrive at the proper valuation by taking the true rental value that should have prevailed, at the time of the section 4(1) notification, and multiplying it by the proper figure for capitalisation. 45 per mensem could well be taken as the reasonable and proper rental figure......government pleader has furnished a table of calculation to court, and, this shows that the current figure should be 4.28 per cent. or thereabouts. if 100 is divided by this figure, it comes to an approximate figure of 24 years' purchase as the proper figure for capitalisation.9. the economic principle behind this can be very simply illustrated. at a time when the rate of return on secured investment is low (three per cent.) we may safely assume that it is a period of depression, and of deflationary tendencies. hence the rent or income on house property will also be low, during such period and it is only fair that the value should be arrived at by dividing 100 by the low return figure, thus establishing the high figure of 33, as the figure for capitalisation. but, when the rate of.....
Judgment:

M. Anantanarayanan, C.J.

1. The appeal is by the Government, from the Judgment of Venkatadri, J., in Appeal Suit No. 267 of 1961, which related to a short matter of the proper valuation of an extent of 1,591 square feet bearing Door No. 2/31,. Xavier Street, Madras City, acquired under the Land Acquisition Act. Admittedly the Land Acquisition Officer awarded a total compensation of Rs. 5,378.90 P. for the value of the land and the building (small tiled house) situate thereon, including the 15 per cent. solatium.

2. There was a reference under Section 18 of the Land Acquisition Act, and, upon this reference the learned Second Assistant Judge, City Civil Court, increased the compensation to Rs. 6,750. Appeals were preferred, both by the claimant and by the State, from this judgment and decree, and the matter came up before our learned brother (Venkatadri, J.) with reference to the proper basis of the determination of compensation, where small areas of this kind, situate in the city, are acquired under powers of eminent domain.

3. It may be convenient, at the outset itself, to refer to the basis of valuation respectively adopted in the award, and, by the learned Judge of the City Civil Court, in appeal. The award officer observed that the building was admittedly fetching a rent of Rs. 30 per mensem to the owner, and, taking the annual income computed thereon, he deducted quit rent municipal taxes and charges for maintenance, and arrived at the net annual income at Rs. 259.85. He then stated that the manager, Reserve Bank of India, specified the market quotation in respect of the Government of India 3 per cent. conversion loan 1986, as on 29th January, 1958 to be Rs. 71 in respect of paper, bearing the ex facie value of Rs. 100. The award officer thus divided Rs. 71 by the rate of interest (three percent.) and arrived at a figure of 23.6 rounded off to 24, as representing the proper figure for multiplication, in order to capitalise the value. Ultimately, he awarded the total compensation, earlier referred to, after making allowance for the considerable age of the building and, in consequence, capitalising the annual value at eighteen years purchase.

4. The learned Judge of the City Civil Court apparently felt that this was not a proper method, in the circumstances of this case. He thought that the proper valuation could be arrived at by adopting the basis of the cost of construction. The property was purchased by the claimant in 1945 for a sum of Rs. 4,500 and the claimant had improved it at a cost of Rs. 1,050. The learned Judge made allowance for a rise of about 50 per cent. in the value of real property, during the 13 years that had elapsed after the purchase. He thus arrived at the proper compensation as Rs. 6,750 and determined it accordingly.

5. When the matter came up before the learned Judge (Venkatadri, J.) the learned Judge pointed out that the true question was, how to arrive at the correct figure for capitalising the annual rental value, since that was known. On this aspect, the learned Judge referred to the decision of the division Bench in Radhakrishna v. Province of Madras : (1948)2MLJ159 , We certainly agree that this decision, which reviews the prior case-law of this Court on this aspect, may be taken as enunciating completely the principles that should be applied to a situation of this kind.

6. The learned Judge first referred to the decision in Collector of Kistna v. Zamindar of Challapalli : AIR1938Mad33 . He pointed out that Venkatasubba Rao, J., has observed in this decision that the adoption of the arbitrary rule of capitalisation at twenty years' purchase, would not be justified, where there is definite evidence about the actual return upon secured money investment, or gilt-edged security. When that return was 3 1/2 Per cent. the figure should be arrived at by dividing 100 by the figure of the return, which would, therefore, permit the value to be multiplied by the figure 30 or thereabouts. In Land Acquisition Officer, Calicut v. Subba Rao : AIR1941Mad684 , another division Bench of this Court, followed the principles in Collector of Kistna v. Zamindar of Challapalli : AIR1938Mad33 , and laid it down as an authorised practice of the Courts, to calculate the profits from any form of landed property as equal to the profits made by investing money in guilt-edged securities. The further case-law need not be reviewed here, as, after noting the vicissitudes of the case law, the division Bench in Radhakrishna v. Province of Madras : (1948)2MLJ159 , finally observed that the number of years purchase could be properly 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. In that particular case,, the figure adopted was 331/3.

7. Venkatadri, J., referred to these cases and also to a decision of Subrahmanyam, J., in State of Madras v. Mohammed Ibrahim : (1960)1MLJ323 . Finally the learned Judge took the figure of 3 per cent, and dividing 100 by this figure arrived at the figure for capitalisation as 33 1/3. He thought that the Land Acquisition Officer was wrong in adopting the figure for capitalisation at 18 years.

8. We agree with the main argument of the learned Additional Government Pleader that the method adopted by our learned brother (Venkatadri, J.) overlooks one vital consideration. Certainly, the figure for capitalisation could well be adopted at the figure resulting from the division of 100 by the figure of investment return on secured investment, at the date of the Section 4 (1) notification. But this is not three per cent. and this is very clear from the notification of the manager of the Reserve Bank of India, which is the sole material on record on this aspect. When the manager pointed out that paper bearing the ex facie value of Rs. 100 relating to the Government of India three per cent. Conversion Loan, 1986 was quoted at Rs. 71 in the market, what was really implied by this, was that the true figure for the return on contemporaneously issued guilt-edged securities had gone up at the relevant date (29th January, 1958) and was no longer three per cent. Actually, the learned Additional Government Pleader has furnished a table of calculation to Court, and, this shows that the current figure should be 4.28 per cent. or thereabouts. If 100 is divided by this figure, it comes to an approximate figure of 24 years' purchase as the proper figure for capitalisation.

9. The economic principle behind this can be very simply illustrated. At a time when the rate of return on secured investment is low (three per cent.) we may safely assume that it is a period of depression, and of deflationary tendencies. Hence the rent or income on house property will also be low, during such period and it is only fair that the Value should be arrived at by dividing 100 by the low return figure, thus establishing the high figure of 33, as the figure for capitalisation. But, when the rate of interest goes up, rents also will increase, and this may be assumed as axiomatic. During such a period, if the rate of interest gives a low figure for capitalisation, on the contrary, the rentals would have necessarily increased and thus the owner is equally secured a just compensation for the value of his property.

10. In the present case, therefore, we think we may well arrive at the proper valuation by taking the true rental value that should have prevailed, at the time of the Section 4(1) notification, and multiplying it by the proper figure for capitalisation. But, we are unable to agree that the true rental Value can only be determined at Rs. 30 per mensem. No doubt, that was the rent prevailing under the contractual tenancy. But it has to be noted that the contractual tenancy bcame a statutory tenancy, by virtue of the provisions successive Rent Control Acts. The result was that, with regard to a building which had been purchased and rented from a period several years antecedent, the Rent Control Act inhibited the owner from deriving rent which he should have obtained easily, had he been able to secure the release of the property from the provisions of the Act.

11. Since the rent of Rs. 30 seems to have prevailed from 1945 onwards, perhaps even earlier, and, we are concerned with the year 1958, by which time both real property values and rental values registered a sharp increase, we think that the figure of Rs. 45 per mensem could well be taken as the reasonable and proper rental figure. Calculated on this basis, and making the usual deduction, we arrive at a net annual income of Rs. 387. We ought to multiply this by 24, if we were merely adopting the formula without a modification. But, we are here dealing with a building that was already sixty years old, and the further life of which must certainly be considered restricted by the age of the building. We must make it clear that the principle and the formula referred to in the previous decisions are certainly authoritative, and should be applied to a case of captitalisation ; but that this does not imply that special modification may not be made by Caurt, resulting from the particular facts of the case before the Court. In the present case, we are of the view that the net annual value that we have arrived at, should be properly multiplied by 18 and not by 24 because the building was quite an ancient one even on the date of the Section 4(1) notification. Thus, we arrive at the total figure of Rs. 6,966 as the proper compensation, and, we award this amount with 15 percent solatium thereon and the statutory interest.

12. The appeal is partly allowed accordingly. Both parties will have proportionate costs.


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