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Case Number

A.S No. 1284 of 1953 (M)

Attorney(S)

For the Appellant: K. A. Mohammad S. Nataraja Iyer

Judges

Sankaran
Raman Nayar, JJ.

Acts

Sections 18 and 19 of the Land Acquisition Act.2.

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Smart Summary

Judgment Summary — Raman Nayar, J.

Factual and Procedural Background

This appeal was brought by the State against an award on enhanced compensation made by the Subordinate Judge, Kozhikode, on a reference under Sections 18 and 19 of the Land Acquisition Act. The disputed land is a portion of T.S. No. 1516 (sub-divided as T.S. No. 1516/2) in Kozhikode town, registered as garden land and measuring approximately 96 cents (referred to variously in the judgment as 95–98 cents). It was acquired for the Kozhikode Municipality to construct scavengers' quarters.

The land lay in a built-up, crowded locality near two bazaars, a municipal cart-stand, a petrol pump and a large mosque. Historically it had contained a large dwelling house and a row of 23 shop rooms (title deed Ext. A-1 dated 5-10-1936). At the time of acquisition there were 44 bearing coconut trees, a disused well and the basement of an old shop on the land.

Before the Collector (after notice under Section 9) the owner claimed Rs. 40,000 for the bare land, Rs. 2,000 for the well and basement, and Rs. 7,000 for the coconut trees. The Collector, finding no recent comparable sales, valued the land by capitalising the assessed net income (from 44 bearing trees producing a net income of Rs. 554-5-11) at twenty years' purchase and added values for other trees and structures; with 15% solatium he fixed total compensation at Rs. 13,700-11-3 and disallowed compensation for the well and basement as not visible on the land.

On reference under Sections 18 and 19, the Subordinate Judge accepted the Collector's net income figure but applied a higher capitalisation multiple (33-1/3) and awarded enhanced compensation (noted at one point in the text as Rs. 9,445-5-3 for an enhanced award and elsewhere the lower court's award for ~95 cents is described as amounting to about Rs. 18,000). The State appealed against the enhancement; the appeal was heard by Raman Nayar, J.

Legal Issues Presented

Whether the proper multiple for capitalising the assessed net income of the land (to determine market value where no comparable sales exist) is twenty years' purchase as adopted by the Collector, or 33⅓ years' purchase as adopted by the Subordinate Judge.
Whether valuation of the well and the basement should be disallowed because they were not in use or should be valued by present cost less depreciation (or by the value of their materials if removed).
Whether the Court should value the land by reference to its present use (garden/agricultural) alone or also by reference to its potential use (building site) when that potential is reasonably likely.

Arguments of the Parties

Appellant (State)

Contended that the Collector's adoption of a multiple of 20 years' purchase for capitalisation was correct and that the Subordinate Judge should not have enhanced the multiple to 33⅓.
Relied on authorities supporting a lower multiple in the absence of material justifying a higher multiple (cases cited in the opinion as D, E and F).

Respondent (Land Owner)

Contended (and the lower court accepted) that a higher multiple — 33⅓ — was appropriate; relied on earlier decisions (cases cited in the opinion as A, B and C) supporting such a multiple for capitalisation in certain circumstances.
Adduced evidence (by the owner's karisthan) suggesting local land prices (the witness estimated one acre in the locality would fetch Rs. 15,000), although the court treated that evidence as speculative.
Claimed separate amounts for well, basement and trees; after reference a Commissioner valuing structures fixed value by present cost less depreciation, a method accepted by the lower court and affirmed on appeal.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Collector of Kistna v. Zamindar of Challapalli, ILR (1938) Mad 431; AIR 1938 Mad 33 (cited as A)	Authority relied on by the lower court for adopting a multiple of 33⅓ years' purchase for capitalising income when determining market value.	The court noted that the lower court relied on this decision in adopting 33⅓; it accepted the decision as part of the line of authorities permitting a higher multiple where justified by facts (town/building potential).
Land Acquisition Officer v. Subba Rao, AIR 1941 Mad 684 (cited as B)	Support for adopting a multiple higher than 20 (used by the lower court in combination with other authorities).	The court treated this decision as among those justifying the higher multiple in suitable cases and therefore as support for the lower court's approach.
Radhakrishna v. Province of Madras, AIR 1949 Mad 171 (cited as C)	Another authority cited by the lower court for adopting 33⅓ as the multiple of capitalisation in appropriate circumstances.	The court accepted that this decision formed part of the precedent base relied upon by the lower court for using the higher multiple.
Sub-Collector, Rajahmundry v. Parthasarathi, AIR 1942 Mad 739 (cited as D)	Authority relied upon by the appellant for supporting a multiple of 20 years' purchase in appropriate cases.	The court acknowledged this decision (and similar ones) as establishing that no fixed rule exists and that in some cases a multiple of 20 is appropriate; nevertheless the court found these authorities of limited assistance on the particular facts.
Revenue Divl Officer v. Vararachari, AIR 1944 Mad 271 (cited as E)	Another authority cited for the proposition that a multiple of 20 may be appropriate; illustrates that the multiple must vary with circumstances.	The court treated it as part of appellant's supporting authorities but held that factual differences in the present case meant those decisions offered little guidance against the higher multiple.
Lakshmi Narasimha v. Revenue Divisional Officer, AIR 1949 Mad 962 (cited as F)	Authority cited for upholding lower multiples in appropriate factual contexts.	The court recognized it among the cases relied upon by the State but concluded the present facts permitted and justified the higher multiple.
Narayana Gajapatiraju v. Revenue Divisional Officer, Vizagapatam, AIR 1939 PC 98 (cited as G)	Principle that valuation must take into account not only current use but the uses to which land is reasonably capable of being put (e.g., the probability of building use), when such use is immediate or reasonably near.	The court quoted Lord Darling from this decision and applied the principle to hold it would be unfair to value the land merely on its current agricultural income where building potential was certain or likely.

Court's Reasoning and Analysis

The court proceeded through the following analytical steps, grounded on the materials and authorities contained in the opinion:

The court accepted the factual findings about the land's situation and character: although registered as garden land and producing income from coconut trees, it was effectively a building site in a busy town locality with historical evidence of a dwelling and 23 shops, close to bazaars and other urban amenities.
Because there were no recent sales of comparable land, capitalisation of income was the only practicable valuation method available. Both the Collector and the lower court therefore adopted a capitalisation approach, but differed on the number of years' purchase (20 vs. 33⅓).
The court surveyed the authorities and distilled the legal principle that there is no rigid rule for the multiple to be used: the correct multiple depends on the facts of each case and the multiple chosen should approximate the price a willing buyer would pay a willing seller. Some decisions support multiples aligned with gilt-edged security returns (suitable for town/urban investments), while others support a multiple of about 20 for ordinary agricultural land.
Applying these principles to the present facts, the court emphasized that the land, although formally garden land, was in fact a building site in demand. The court relied on the authority of Narayana Gajapatiraju that one must account for a land's probable near-future use (here, for building) rather than confining valuation to its immediate agricultural income.
The court noted additional factual grounds for a higher multiple: the land had not been fully exploited agriculturally (only 44 bearing coconut trees, whereas ordinarily there are about 120 trees per acre), implying that the Collector's valuation on the basis of income and a 20 multiple effectively valued only about half the land. Thus even if a multiple of 20 were acceptable for pure agricultural land, the Collector's application of it here produced an under-valuation relative to market value as a building site.
For these reasons the court concluded that the lower court's adoption of 33⅓ years' purchase was justified on the facts — not solely because gilt-edged securities at the time yielded about 3% — but because urban building-site land customarily commands a price far greater than agricultural income would suggest and because the land was not fully producing agricultural income.
On the valuation of the well and basement, the court approved the lower court's adoption of the Commissioner's approach (present cost of construction less depreciation in accordance with condition). The court rejected arguments that unused structures have no value or should be valued merely by the salvage value of materials, observing that the basement could be used for shops and the well would be useful for any future building.

Holding and Implications

Holding: The appeal is DISMISSED. The Court upheld the Subordinate Judge's award of enhanced compensation (the lower court's higher capitalisation multiple and the valuation approach for the structures).

Implications: The direct consequence is that the enhanced award (as made by the Subordinate Judge) stands and the State's appeal fails; costs were awarded against the appellant. The court's reasoning reiterates the settled principle that the multiple for capitalising income to derive market value is fact-dependent and that land likely to be used for building must be valued with its potential in mind rather than only by current agricultural income.

This opinion does not assert the creation of any new general rule; it applies existing authorities and facts to uphold the higher multiple and the valuation method for structures in the circumstances of this case.

R.G.D

Final disposition in the text: "Appeal dismissed." (para 12)

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State Of Madras v. Aissabi .

Raman Nayar, J.:— This appeal by the State is against the award on the enhanced compensation (to the tune of Rs. 9,445-5-3) by the Subordinate Judge, Kozhikode, on a reference made to him under Sections 18 and 19 of the Land Acquisition Act.

2. The land acquired is a portion of T.S No. 1516 of Kozhikode town and is registered as garden land. It is 96 cents in extent and has been separately sub-divided as T.S No. 1516/2 it was acquired on behalf of the Kozhikode Municipality for the construction of scavengers' Quarters. The following description of the land in paragraph 9 of the Judgment under appeal is amply borne out by the evidence on record, even by the evidence of the witnesses examined on the Bide of the Government, and its correctness can scarcely be disputed:

“The land in question is practically now a building-site with trees standing on it. There is a dis-used well and the basement of an old shop. It is bounded on two sides by important roads end it is situated in a crowded locality in Calicut town. It is a compact area suitable for building purposes. There are residential buildings near it and also shops.”

3. We might add that the land is in a built Up area, that it is in the vicinity of two bazaars, the Eranhipalam Bazar and the Nadakkavu Bazaar, that there is a Municipal cart-stand and a petrol pump and a big mosque adjoining the land, and that at one time there was, as the title deed Ext. A-1 dated 5-10-1936 shows, a big dwelling house and a row of 23 shop rooms in the land itself. Before the Collector, pursuant to the notice under Section 9 of the Act, the owner of the land claimed a compensation of Rs. 40,000 as the value of the bare land in addition to a sum of Rs. 2,000 as the value of a well and a basement, and a sum of Rs. 7,000 as the value of cocoanut trees, standing thereon. There being no sales of similar lands in the neighbourhood in recent years the Collector valued the land on the basis of the income it yielded as garden land and, assessing the net income from the 44 bearing cocoanut trees standing on the land at Rs. 554-5-11, arrives at the market value of the land by capitalising this at twenty years' purchase. To this he added the value of the cocoanut trees past bearing and of some miscellaneous trees and structures on the land and, inclusive of the 15 per cent solatium, arrived at the total compensation to Rs. 13,700-11-3. He allowed no compensation for the well and basement on the ground that they were not visible on the land.

4. No evidence was adduced of any sales of this land itself or of similar land in the vicinity before the lower Court, and the Court had therefore to adopt the same method of valuation as that adopted by the Collector, it accepted the net income as assessed by the Collector, but, relying on the decisions in The Collector of Kistna v. Zamindar of Challapalli, ILR (1938) Mad 431; (AIR 1938 Mad 33) (A), Land Acquisition Officer v. Subba Rao, AIR 1941 Mad 684 (B) and Radhakrishna v. Province of Madras, AIR 1949 Mad 171 (C), adopted the multiple of 33-⅓ instead of 20 for the purpose of capitalisation. In doing se it accepted the statement in the owner's petition under Section 18 of the Act that the rate of interest on Government securities on the date of the notification under Section 4(1) of the Act was 3 per cent, this statement not having been controverted before him by the Government.

5. The main contention before us has been that the multiple of 20 adopted by the Collector was correct and that the Court below should not have enhanced it to 33-⅓. In support of this, reliance is placed on the decisions in Sub-Collector, Rajahmundry v. Parthasarathi, AIR 1942 Mad 739 (D), Revenue Divl Officer v. Vararachari, AIR 1944 Mad 271 (E) and Lakshmi Narasimha v. Revenue Divisional Officer, AIR 1949 Mad 962 (F). In upholding the multiple of 33-⅓ adopted by the Court below, the respondent has cited the very decisions upon which that Court has relied.

6. We are afraid that having regard to the facts of this case, these decisions can afford us little guidance. What they do lay down is that there is no hard and fast rule regarding the multiple to be adopted for purposes of capitalisation. It must vary according to the case, and the Court, having regard to the materials placed before it must choose that multiple which in its opinion will enable it to reach the price which a willing buyer would pay a willing seller. A certain amount of arbitrariness is necessarily involved in this method of computation. Generally speaking, it might be said that the return from landed property reflects the prevalent rate of interest on money investments. A person who invests money in landed property in a town or in the melvaram interest in Zamindari lands usually expects no greater return than what gilt-edged securities would bring him, while a person investing in ordinary agricultural land of no higher potential value would look for a higher return to compensate for his trouble in attending to the land and the risks involved in its cultivation. Therefore while a multiple based on the current rate of interest on gilt-edged securities might be adopted in the case of the former type of landed property, a multiple of 20 would be a safer basis for arriving at the market value of purely agricultural land.

7. This is the sum and substance of the decisions that have been cited. But, in the present case, we are dealing with a land which though registered as garden land is really a building site situated in an important locality of a city. The very fact that the land has been acquired for the purpose of building houses shows that it must have been regarded as suitable for the purpose. At one time there was a house and a row of shops standing upon it and although in its present condition for which the fact that it is wakf is probably responsible the only income derived by the owner is that afforded by the cocoanut trees standing on it, it is obviously unfair to value the land merely on the basis of that income. It is well established that land is not to be valued merely by reference to the use to which it is being put at the time of the notification under Section 4(1) of the Act but also by reference to the uses to which it is reasonably capable of being put in the future. As observed by Lord Darner in Narayana Gajapatiraju v. Revenue Divisional Officer, Vizagapatam, AIR 1939 PC 98 (G).

“No one can suppose in the case of land which is certain, and even likely, to be used in the immediate or reasonably near future for building purposes but which at the valuation date is waste land or is being used for agricultural purposes that the owner, however, willing a vendor, will be content to sell the land for its value as waste or agricultural land as the case may be. It is plain that in ascertaining its value the possibility of its being used for building purposes would have to be taken into account”.

8. In the case of land having a potential value as building site, especially in a city, it is hardly fair to arrive at its market value by capitalising the income at a certain number of years' purchase. But in the absence of any other material that is the only method that is open in this case. The question then is whether the Court below was justified in adopting the higher multiple of 33-⅓ per cent as against the multiple of 20 adopted by the Collector. We think it was, but not entirely for the reason that gilt-edged securities were at the time fetching only a return of, three per cent. In the first place it is notorious Shat land which is suitable and in demand for building, especially when situated within a town, fetches a far higher price than its income when put to agricultural uses would warrant in the second place the land now in question has not been fully exploited even as agricultural land. Portions of it are occupied by the basement of buildings and although it is 98 cents in extent there are only 44 bearing cocoanut trees on it. Ordinarily the number of trees in a cocoanut garden is about 120 per acre and this would indicate that only about half the land is covered by trees. Even assuming that the multiple to be adopted is 20, it would follow that the compensation awarded by the Collector is only for about behalf of the land. So, in any view of the matter the Court below was fully justified in adopting the higher multiple of 33-⅓.

9. It is said that even the owner's karisthan who was examined on her behalf only claimed that one acre of land in the locality would fetch Rs. 15,000 whereas the award by the lower Court for 95 cents comes to Rs. 18,000 and odd. But it seems to us that the witness was merely hazarding an opinion on little more than conjecture and further that, following the method adopted by the owner, he was valuing the bare land excluding the trees thereon.

10. In paragraph 5 of the memorandum of appeal it is stated that the observations of the lower Court in paragraph 9 of its judgment are not correct and that the Court should have had regard to the condition of the land at the time of the notification under Section 4(1) of the Act and not to its present condition. This criticism is unjustified and the description of the land given by the lower Court is as true of its condition at the time of S. 4(1) notification in 1950 as it is today.

11. With regard to the well and the basement standing on the land, the Court below adopted the valuation fixed by the Commissioner appointed by it. The Commissioner arrived at the valuation by determining the present cost of construction and making a deduction for depreciation in accordance with the condition of the structures. This is a fair method of valuation and we see no force in the argument that since the owner was not putting the structures to any use and was deriving no income from them, they can be of no value. Nor do we agree that the structures should have been valued at what the materials would fetch if removed and sold. The basement could be used for putting up shops and the well would be a very useful adjunct to any building put up on the land and they are certainly structures for which full value must be paid. The appeal fails and is dismissed with costs.

R.G.D

12. Appeal dismissed.

State Of Madras v. Aissabi .

Judgment Summary — Raman Nayar, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant (State)

Respondent (Land Owner)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

State Of Madras v. Aissabi .

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