1. The short question for decision in this case concerns the capital value of an asset yielding regular income. The Electricity Board had for the purpose of drawing a 66 K. V line felled certain trees and removed the timber from the land of the respondent on account of this it was liable to pay compensation to the respondent. The dispute as to the quantum of compensation came up before the District Court under S. 16 of the Indian Telegraph Act read with S. 51 of the Indian Electricity Act. The court determined such compensation by modifying the determination by the Kerala State Electricity Board. Such modification was not in regard to the data furnished by the Board, but to the rate of interest for annuity.
2. It was held by this court in Kerala State Electricity Board v. Varghese Thomas 1961 KLT. 238 that determination of compensation should be on the basis of the reasonable return a person would expect from his assets. At the time that case was decided by the Division Bench it was assumed that having regard to the condition of the money market and the value of the security afforded by investment on land which was according to the then view inferior to investment in what were then called gilt-edged securities, a rate of 5% interest per annum may be considered to be reasonable and fair from all points of view.
3. It was assumed that there would be no attraction to invest in land more than in gilt-edged securities. The income on gilt-edged securities was somewhere around 5% at that time and that was adopted for the purpose of capitalisation. The principle is really not one of capitalisation, for allowance could have to be made for accelerated payment. The compensation payable ought not to be the capitalised value but only the present value of an annuity at fair current rate of interest which represents the annual net yield.
4. Gilt-edged securities were the best form of investment some years ago. Judged by contemporary notions of reasonable rate of interest the return from such securities would be low, but at that time such return was considered as reasonable. Investment in such securities was attractive for the investor but today, to a considerable extent, the gilt has worn off the edge of gilt-edged securities. There are many forms of investment today, secure to the investor and at the same time yielding much higher return. For some years now the Notionalised Banks have been offering 10% interest on deposits of 61 months and more. Debentures issued by limited companies of good standing provide prospect of much higher rates of interest, 13% to 15%. Even investments in Unit Trust yield reasonable rate of return. Unit Trusts are as much secure as any security could be expected to be. Same is the case with deposits in the Nationalised Banks. Investments in lands in these days of inflation in value of property is expected to yield not only the annual return, but benefit by the very inflationary trend A land with yielding trees would secure to the owner recurring income and in the present context a prospect of appreciation in capital value from time to time. I am mentioning these facts here to show that what was stated by a Division Bench of this court in 1961 is not to be taken as law for all time. That was said by this court in the context of the then situation in the money market and the concept of reasonable return to an investor. Twenty years is a long period. The last ten years, particularly, have been years which saw unprecedented inflation. In the earlier decision this court did not purport to lay down any rule of rate of return for all time nor could it do so. The mistake committed by the court below was in assuming that it did. In fact we had occasion, though in a different context, to point out that the rate of return on gilt-edged securities is not of that relevance today as it was once. I am referring to the Full Bench decision of this court in Rarukutty v. Special Tahsildar And Land Acquisition Officer, Kozhikode 1973 KLT. 573 Isaac, J. said in that case:
“The rates of interest for gilt-edged securities have also gone up much higher than what they were a few decades ago. We have nationalised banks which give more than 6% interest on fixed deposits. With growth of industry, channels for investment and rates of return have also increasad. These are all relevant considerations in fixing the market value of land.”
5. I had occasion to observe in the same case thus:
“All told it will be unreasonable to expect a prudent investor to sink his money in purchase of properties with buildings unless he is assured of an appreciable increase in the income return, from what he could safely obtain by depositing his money with a Nationalised Bank and earn, say 7% as yearly interest. I am only indicating that the ancient concept of return on gilt-edged securities as the basis for capitalisation may no longer be appropriate.”
6. The reference to 7% was because at that time interest return on a fixed deposit for five years was around 7%. But today that has undergone a further enhancement to 10%.
7. In short, for the purpose of capitalisation or for the purpose of determining the return on an annuity the rate to be determined depends upon the current rate of return on a safe and sound investment. Such current rate is certainly not 5%, it is much more. The Electricity Board has adopted 10% by way of such return, but the court below chose to fix it at 5% applying the decision in Kerala State Electricity Board v. Varghese Thomas, 1961 KLT. 238. That is evidently wrong. A total sum of Rs. 16,565.04 is seen mentioned in the order as excess compensation for coconut trees. How this figure was arrived at is not evident. No. reasons are indicate. In the light of what I have said here a re-determination of the excess compensation, if any, is called for. I set aside the order of the District Court and remit the case back to that court for a proper disposal. No. costs.
8. Allowed.