Alfred Henry Lionel Leach, C.J.
1. The appellant is the owner of a plot of land in Thatha Muthiappan Street, George Town, Madras. On the 18th October, 1912 the appellant leased this land to the respondents for a period often years. The respondents acquired the lease for the purpose of building thereon a hall which was intended to be used for dramatic performances. At the time the lease was entered into there was a building on the land, but this the respondents demolished and erected in its stead a new building, which was used for dramatic performances and for cinematograph entertainments. On the expiration of this lease the appellant granted to the respondents a new lease for another period of ten years from the 1st of October, 1922. Clause 4 of the second lease reads as follows:
The lessee shall always and in any event be entitled to be paid the price of the superstructure built on the said plot of land before he surrenders possession of the land either on the expiry of the lease hereby granted or any other future lease or at any time. The price shall be fixed according to the market value of the buildings as at the time of ascertainment and payment.
2. Therefore, when the respondents' right to occupy the land expired, the appellant was to be entitled to the building on it, provided he paid to the respondents the market value. This had to be paid before the respondents surrendered possession. This factor has an important bearing on one of the questions raised in this appeal.
3. The second lease was not renewed and the appellant became entitled to the possession of the property on payment to the respondents of the value of the building which now stands upon the land. He tendered to the respondents the sum of Rs. 3,000 as representing its market value. This was not accepted and on the 25th January, 1933, the appellant filed on the Original Side of this Court the suit out of which this appeal arises. He prayed for a decree for possession, for payment to him of Rs. 2,900 (the amount which he claimed to be due as mesne profits up to the date of the filing of the suit); and for payment of future mesne profits at the rate of Rs. 725 per mensem. The respondents contested the appellant's right to possession of the land. They contended that by virtue of the Madras City Tenants Protection Act of 1921, which came into force on the 21st of February, 1922, they were entitled to a conveyance of the land on payment to the appellant of a sum representing the value of the building. The respondents also contended that the appellant could not in any event obtain a decree for possession until he had paid Rs. 100,000, which the respondents alleged was the true value of the building. The suit was tried by Wadsworth, J., who held that the Madras City Tenants Protection Act did not apply and that the appellant was entitled to a decree for possession. Having decided this question, the learned Judge directed the Official Referee to hold an inquiry into the value of the superstructure, A preliminary decree was passed in accordance with this judgment and an appeal was then filed. The appellate Court concurred in the opinion expressed by Wadsworth, J., that the Madras City Tenants Protection Act did not apply. The respondents then appealed to the Privy Council, but there also failed. The judgment of the Judicial Committee was delivered on the 10th October, 1939.
4. With regard to the appellant's contention that he was entitled to recover mesne profits from the respondents Wads-worth, J., said that this question depended on whether the respondents were in wrongful possession of the property and he considered that they could not be held to be in wrongful possession if the amount of compensation offered by the appellant, namely, Rs. 3,000, was 'ridiculously inadequate'. If, on the other hand, the amount offered approximated to the true value of the superstructure the respondents would be wrong in refusing to deliver possession to the appellant, and consequently they would render themselves liable for mesne profits. With these observations the learned Judge left the question of liability to mesne profits to be decided after the property had been valued.
5. The inquiry conducted by the Official Referee proved to be a lengthy one and his order was not passed until the 4th March, 1938. The Official Referee found that the value of the superstructure was Rs. 18,000. This finding was challenged by both sides. The appellant said it was far too much and the respondents said it was far too little. The objections to the Official Referee's report were heard by Venkataramana Rao, J., who, on the 11th May, 1938, held that the vakte was Rs. 20,400. The learned Judge directed the appellant within three months to deposit the amount into Court or to pay it to the respondents. In default of payment the amount was to carry interest at six per cent. per annum from the date of default. The learned Judge also held that the appellant was entitled to set-off against this sum, Rs. 100 per mensem from the 1st October, 1932 up to the date of payment as 'the rent due and payable' for the occupation of the premises. On the 10th October, 1938 the appellant paid into Court Rs. 20,400, but pending the decision of the Privy Council the respondents obtained a stay of that part of the decree requiring them to give possession to the appellant. It was made a condition of the stay that the respondents should pay into Court a sum of Rs. 900 every month as security for the mesne profits which the appellant might be entitled to. The appellant obtained possession of the property on the 1st August, 1940.
6. The present appeal is from the decision of Venkataramana Rao, J. In the first place the appellant says that the learned Judge should not have valued the building at more than Rs. 14,000. In the second place, he says that he is entitled to mesne profits from the date of the expiry of the lease, namely, the 1st October, 1932, to the 1st of August, 1940, when the possession was obtained. He also advances the contention that the learned Judge should not have awarded any interest on the Rs. 20,400. The respondents have filed a memorandum of cross-objections. They contend that the learned Judge should have valued the building at the sum of Rs. 50,000.
7. In holding that the value of the building was Rs. 20,400 that is, Rs. 2,400 more than the value placed upon it by the Official Referee, Venkataramana Rao, J., said that if the land-lord were to erect a pucca building on the site, some time would be taken to construct it and he would during the interval be deprived of the present user and the income derived therefrom. Therefore the learned Judge was not inclined to allow any sum for depreciation. We find ourselves unable to agree that this is a valid reason for refusing to allow for depreciation. The contract between the parties stipulated that the price to be paid should be according to the market value of the building at the time the landlord resumed possession. In valuing the building at Rs. 18,000 the Official Referee had regard to the cost of reproducing the building and then allowed for depreciation and cost of repairs, a method of which the Privy Council approved in Hari Chand v. Secretary of State (1939) 2 M.L.J. 722 : L.R. 66 IndAp 258 : I.L.R. (1939) Kar. 363 . No authority has been cited which lends support to the decision of the learned judge that there ought to be no deduction for depreciation.
8. While accepting the applicability of the principle referred to in Hari Chand v. Secretary of State (1939) 2 M.L.J. 722 : L.R. 66 IndAp 258 : (1939)I.L.R. Kar. 363 , Mr. Rajah Aiyar on behalf of the respondents, has contended that regard should also be had to the fact that this building can be let out as a cinema hall at a monthly rent of Rs. 800. In our opinion that was never in the contemplation of the parties and is not a factor which should be taken into consideration in a case where a person is allowed to build on another's land on the understanding that when his right of occupation to that land has expired the building shall become the property of the land owner on payment of its value as a building. Unless there is some stipulation to the contrary, it seems to us that value must be the constructional value of the building. Any figure in excess of that value must be attributable to the site, not to the building. A building which is favourably situated will fetch more in rent than a similar building which is not well situated. Mr. Rajah Aiyar has conceded that if a special value is not to be placed on the building by reason of its being a cinema hall he cannot object to the finding of the Official Referee that its value is Rs. 18,000.
9. With regard to the value of the building it only remains to consider whether the Official Referee was right in his conclusion that Rs. 18,000 was the fair price to be paid. After a careful examination of the evidence the Official Referee considered that the cost of the erection would be Rs. 20,000, but it would be proper to allow a deduction of ten per cent. for depreciation. Mr. Viswanatha Aiyar does not object to the finding that the constructional value was Rs. 20,000 but he says that there should be a greater amount allowed for depreciation. He asks that a third of the amount should be deducted on this ground. We consider that this is far too much and that the Official Referee was right in allowing a deduction of ten per cent.
10. The next point to be considered is whether the learned Judge was right allowing the appellant a sum of Rs. 100 per mensem by way of rent instead of an amount for mesne profits-If the appellant is entitled to mesne profits he would certainly be entitled to more than Rs. 100 per mensem, because for many years the building was let at a rent of Rs. 700 per mensem and later at Rs. 800 per mensem. The appellant can only claim mesne profits if the respondents are to be regarded as trespassers. As did Venkataramana Rao, J., we agree with Wads-worth, J., that the respondents could only be treated as being in wrongful possession if they had refused a reasonable offer for the building at the expiration of the lease. No reasonable offer was made. The offer of Rs. 3,000 was 'ridiculously inadequate'. The appellant should have made an offer in the neighbourhood of Rs. 18,000. As I have already pointed out the contract contemplated that the respondents should remain in possession until the market value of the building had been paid. It was not paid until the 10th October, 1938 and as no reasonable offer was made in the meantime the respondents cannot be regarded as trespassers and in the circumstances the respondents' occupation must be deemed to have continued on the basis fixed by the contract, namely, on payment of a Rs. 100 per mensem. This, of course, does not apply after the stay was granted. The position since then will be governed by the conditions of the stay.
11. The only other question for consideration is whether Venkataramana Rao, J., was right in holding that the sum of Rs. 20,400, which he regarded as the value of the building, should carry interest at 6 per cent. in the event of default in payment within three months of his order. Inasmuch as the learned Judge directed the respondents to pay Rs. 100 a month for their occupation of the land he was not entitled to direct that the Rs. 20,400 should carry interest. This objection must be upheld.
12. The decree on the Original Side will be modified to the extent indicated. As the appellant has failed in the main and as the respondents have failed entirely, we make no order as to-costs in this Court.