Kerala High Court
Poyyeri Rarukutty And Ors. vs Special Tahsildar And Land Acquisition ... on 5 July, 1973
Equivalent citations: AIR 1973 KERALA 254, 1973 KER LJ 627 1973 KER LT 573, 1973 KER LT 573
JUDGMENT Isaac, J.
1. These appeals have been placed before a Full Bench as they raise a common question of general importance concerning the fixation of compensation payable for a land with buildings on the acquisition of such a property under the Kerala Land Acquisition Act, 1961. The question is whether capitalisation of the income received from the land and the buildings is the only method for determining the compensation.
2. Section 25 of the Act enumerates the things to be taken into consideration in determining the amount of compensation. The first thing is the market value of the land at the date of the publication of the notification under Section 3 (1) of the Act. The other considerations are not relevant here. Land as defined in the Act includes benefits arising from it and things attached to the earth. So the compensation payable for a land with buildings in such a case is the market value of that property on the relevant date. The term "market value" is not defined in the Act. nor is there any provision in the Act or the Rules thereunder as how to decide it. The Land Acquisition Bill. 1893 contained a definition of "market value". But the Select Committee which scrutinized the Bill dropped that definition; and it stated that no attempt should be made to define that term, and that "the price which a willing vendor may be expected to obtain in the market from a willing purchaser" should be left to the decision primarily of the Collector and ultimately of the Court. The Law Commission of India, 1957 apreed with the above view. The Privy Council stated in Narayana Gajapatiraju v. Revenue Divisional Officer, AIR 1939 PC 98:
"The compensation must be determined therefore by reference to the price which a willing vendor might reasonably expect to obtain from a willing purchaser."
3. The above definition of market value, If we may call it so, has been followed by Indian High Courts, and accepted by the Supreme Court. Courts have, however, enunciated different principles in determining the market value; and necessarily the question as to which of them apply to a particular case depends on diverse circumstances. It would be unwarranted to lay down any universal rule or principle for the fixation of the market value of any class of property including land with buildings. And we would not have seriously considered the proposition canvassed for by the appellants' counsel that capitalisation of the income is the only method of determining the market value of a land with buildings, but for the fact it is sought to be supported by certain passages contained in the judgment of the Supreme Court in State of Kerala v. Hassan Koya, AIR 1968 SC 1201. Justice Shah in delivering the judgment of the Court stated:
"We agree with the Trial Court and the High Court that the method adopted by the Land Acquisition Officer for determining compensation payable for extinction of the interest of the holder of the land and of the buildings separately was unwarranted. In determining compensation payable in respect of land with buildings compensation cannot be determined by ascertaining the value of the land and the break up value of the buildings separately. The land and the building constitute one unit, and the value of the entire unit must be determined with all its advantages and its potentialities."
4. Counsel for the appellants hanged on the second sentence in the above passage, and contended that, in so far as the market value in the instant cases has been fixed by valuing the land and the building separately, the fixation made by the Trial Court has to be rejected. The contention cannot be accepted when we read a subsequent passage in the judgment. The learned Judge said:
"The value which a willing vendor might reasonably expect to receive from a willing purchaser in respect of a house generally depends upon a variety of circumstances including the nature of the construction, its age, situation, the amenities available, its special advantages and a host of other circumstances. When the property sold is land with building, it is often difficult to secure reliable evidence of instances of sale of similar lands with buildings proximate in time to the date of the notification under Section 4. Therefore, the method which is generally resorted to in determining the value of the land with buildings especially those used for business purposes is the method of capitalization of return actually received or which might reasonably be received from the land and the buildings."
We are not prepared to find any contradiction in the above two passages. The sen-
tence relied on by the appellants' counsel from the first passage was an expression of opinion on the particular facts of the case before the Court, while the second passage lays down the general proposition of law; and from this passage it is clear that the market value of the land with buildings depends on a variety of circumstances, and that the method of capitalisation of income is only a method which may be resorted to in, appropriate cases.
5. Reference was also made by counsel for the appellants to the decision of the Supreme Court in State of Gujarat v. Vakhat-singhji, AIR 1968 SC 1481 and reliance was made on the following passage in that decision :
"The owners could be fairly compensated by giving the market value deduced from the estimate yield. The High Court rightly rejected the reinstatement method. The value of irrigational bunds, tanks and wells is not what they cost but what they paid in annual income."
This is an observation made by the Court, while dealing with the fixation of compensation for irrigational bunds, tanks and wells vested in the Government under the Bombay Taluqdari Act, 1949. This statement is no authority for the proposition that in the case of a land with buildings, the market value should be determined on the basis of the annual income.
6. Counsel for the appellants sought support for their contention from the following passage appearing in the majority judgment of the Supreme Court delivered by Shah, J. in R. C. Cooper v. Union of India, AIR 1970 SC 564:
"102. The broad object underlying the principle of valuation is to award to the owner the equivalent of his property with its existing advantages and its potentialities. Where there is an established market for the property acquired, the problem of valuation presents little difficulty. Where there is no established market for the property, the object of the principle of valuation must be to pay to the owner for what he has lost, including the benefit of advantages present as well as future, without taking into account the urgency of acquisition, the disinclination of the owner to part with the property, and the benefit which the acquirer is likely to obtain by the acquisition. Under the Land Acquisition Acts compensation paid is the value to the owner together with all its potentialities and its special adaptability if the land is peculiarly suitable for a particular use, if it gives an enhanced value at the date of acquisition.
103. The important methods of determination of compensation are-- (i) market value determined from sales of comparable properties, proximate in time to the date of acquisition, similarly situate, and possessing the same or similar advantages and subject to the same or similar disadvantages. Market value is the price the property may fetch in the open market if sold by a willing seller unaffected by the special needs of a particular purchase; (ii) capitalization of the net annual profit out of the property at a rate equal in normal cases to the return from gilt-edged securities. Ordinarily value of the property may be determined by capitalizing the net annual value obtainable in the market at the date ef the notice of acquisition, (iii) where the property is a house, expenditure likely to be incurred for constructing a similar house, and reduced by the depreciation for the number of years since it was constructed; (iv) principle of reinstatement, where it is satisfactorily established that reinstatement in some other place is bona fide intended, there being no general market for the property for the purpose for which it is devoted (the purpose being a public purpose) and would have continued to be devoted, but for compulsory acquisition. Here compensation will be assessed on the basis of reasonable cost of reinstatement", (v) when the property has outgrown its utility and it is reasonably incapable of economic use, it may be valued as land plus the break-up value of the structure. But the fact that the acquirer does not intend to use the property for which it is used at the time of acquisition and desires to demolish it or use it for other purpose is irrelevant; and fvi) the property to be acquired has ordinarily to be valued as a unit. Normally an aggregate of the value of different components will not be the value of the unit.
104. These are, however, not the only methods. The method of determining the value of property by the application of an appropriate multiplier to the net annual income or profit is a satisfactory method of valuation of lands with buildings, only if the land is fully developed, i. c., it has been put to full use legally permissible and economically justifiable, and the income out of the property is the normal commercial and not a controlled return or a return depreciated on account of special circumstances. If the property is not fully developed, or the return is not commercial the method may yield a misleading result."
We do not think that there is anything in the above passage which would go contrary to or mitigate the general principles laid down by the learned Judge in the second passage that we have already quoted from his decision in AIR 1968 SC 1201 though one or two sentences, if taken and read out of context, may apparently lend some support for the contention of the appellants' counsel.
7. We shall now refer to a more recent decision of the Supreme Court in Tribeni Devi v. Collector, Ranchi, AIR 1972 SC 1417. If we may say so with respect, the following passage in the above decision contains a comprehensive statement of the correct legal position:
"4. The general principles for determining compensation have been set out in Sections 23 and 24 of the Act. The compensation payable to the owner of the land is the market value which is determined by reference to the price which a seller might reasonably expect to obtain from a willing purchaser, but as this may not be possible to ascertain with any amount of precision, the authority charged with the duty to award compensation is bound to make an estimate judged by an objective standard. The land acquired has, therefore, to be valued not only with reference to its condition at the time of the declaration under Section 4 of the Act but its potential value also must be taken into account. The sale deeds of the lands situated in the vicinity and the comparable benefits and advantages which they have, furnish a rough and ready method of computing the market value. This, however, is not the only method. The rent which an owner was actually receiving at the relevant point of time or the rent which the neighbouring lands of similar nature are fetching can be taken into account by capitalising the rent which according to the present prevailing rate of interest is 20 times the annual rent. But this also is not a conclusive method. This Court had in Special Land Acquisition Officer, Bangalore v. T. Adinarayan Setty, (1959) Suppl 1 SCR 404 - (AIR 1959 SC 429) indicated at page 412 the methods of valuation to be adopted in ascertaining the market value of the land on the date of the notification under Section 4 (1) which are: (i) opinion of experts; (ii) the price paid within a reasonable time in bona fide transactions of purchase of the lands acquired or the lands adjacent to the lands acquired and possessing similar advantages; and (iii) a number of years' purchase of the actual or immediately prospective profits of the lands acquired. These methods, however, do not preclude the Court from taking any other special circumstances into consideration, the requirement being always to arrive as near as possible at an estimate of the market value. In arriving at a reasonable correct market value, it may be necessary to take even two or all of those methods into account inasmuch as the exact valuation is not always possible as no two lands may be the same either in respect of the situation or the extent or the potentiality, nor is it possible in all cases to have reliable material from which that valuation can be accurately determined."
In the above case, the Court determined the market value of the land by taking into consideration its value on the basis of capitalisation of income as well as on the basis of the value of similar lands in the locality; and the market value was fixed at a figure between the two amounts arrived at by the different methods of valuation. This decision clearly shows that no hard and fast rule can be applied for determining the market value of a properly. The Court must use such method or methods as would best suit to ascertain the market value. As stated by the Privy Council in AIR 1939 PC 98 there is not in general any market for land in the sense one speaks of market for shares or commercial goods. In the case of land, one has to ascertain from the available materials as best as it can be done what a willing vendor might reasonably expect to obtain from a willing purchaser for the land in that particular position. In other words, the market value of a land cannot be determined with mechanical or arithmetical precision; it is always a best judgment assessment on tho facts of the case.
8. We shall now indicate how unrealistic it would be to apply a uniform rule of capitalising the income for determining tho market value of a land with buildings. Suppose A constructs a non-residential building costing rupees three lakhs on a land costing rupees one lakh in a commercial area in a city. He may be getting perhaps 15% return on the investment. Suppose B constructs a residential building on a land, both costing the same amounts, within a Panchayat area. B may not get even 1% return on his investment. The market value of A's land and building would be far more than they cost him, but in the case of B, it would be much less than his investment. At the same time, no reasonable purchaser would pay a value for A's property on the basis of capitalisation of income, since such a value may have no proportion to A's investment. It is also equally clear that any willing purchaser would be prepared to pay for B's property a much higher value than the value that would be arrived at by capitalisation of income. So the true market value would not be the one arrived at on the basis of income, nor the total cost of the property to its owner. Both are relevant considerations; and the Court has to decide what a willing vendor might reasonably expect to get for the property concerned from a willing purchaser.
9. Let us take the case of two buildings having the same size and facilities, both situate side by side in the same extent of land in a commercial locality. Both of them may fetch the same rent, though one may be new and the other may be a very old one nearing reconstruction. Obviously their market values would be different. The market value of the land with the old building cannot be determined on the basis of its income; and at the same time it may have a higher value than the value of the land and the old structure, since any ordinary purchaser would pay a higher amount, in consideration of the income that the property is bringing, though only for a few years more. It is also not unusual that buildings of the same kind built at the same period and situate in the same extent of land in the same locality and having the same facilities fetch different rents. In one case, the landowner might have been lucky to get a tenant for a very high rent, while in the other case he might have been obliged to lease it for a low rent. The rent that the building is fetching has got some amount of relevancy in fixing the market value; but certainly that would not be the basis, since in the above illustration, both the properties may have more or less the same market value.
10. We have got a very instructive discussion of the above aspects of the matter in Nichols' 'The Law of Eminent Domain", Third Edition -- Volume 4, Chapter XII (2), pages 36, 37 and 38. The learned author has defined 'market value' as follows -- Vide Chapter 122 (1), page 32:
"By fair market value is meant the amount of money which a purchaser willing but not obliged to buy the property would pay to an owner willing but not obliged to sell it, taking into consideration all uses to which the land was adapted and might in reason be applied."
After a discussion of the various matters to be considered in determining the market value of a property, the learned author sums up --Vide Chapter 12.31 (2), page 52:
'The things to be considered in determining the market value of real estate are accordingly:
(a) A view of the premises and their surroundings.
(b) A description of the physical characteristics of the property and its situation in relation to the points of importance in the neighbourhood.
(c) The price at which the land was bought, if sufficiently recent to throw light on present value.
(d) The price at which similar neighbouring land has sold at or about the time of the taking. This test, so conclusive in the case of articles of personal property commonly bought and sold, is so much less valuable in the case of real estate that in some jurisdictions it is rejected altogether, but it is generally considered that it should be used for what it is worth.
(e) The opinion of competent experts.
(f) A consideration of the uses for wrrch the land is adapted and for which it is available.
(g) The cost of the improvements, if they are such as to increase the market value of the land.
(h) The net income from the land, if the land is devoted to one of the uses to which it could be most advantageously and profitably applied."
11. We shall also refer to another authority on the subject, "Law of Eminent Domain" by Alfred D. Jahr, (1953 Edition). After a general discussion regarding the valuation of property, the learned author sums up at pages 100-101 :
"It is evident, therefore, from the foregoing definitions as well as from numerous other definitions which may be cited, that the fair market value of property taken by eminent domain is the price that the property will bring when offered for sale by one desiring, but not obliged, to sell; and purchased by one desiring to purchase but under no necessity of buying. It is the price which a piece of property will bring in the market when offered for sale and purchased by another, taking into consideration all the elements of the availability of the property, its use, potential or prospective, and all other elements which combine to give a piece of property a market value."
He deals with the fixation of market value on the basis of rental income at pages 226 to 229, and sums up as follows:
"It is far sounder practice to avoid the use of rental vaiue capitalization, if better evidence of market value is available. In any event, the Courts are inclined to give a greater weight to sales of similar properties in the market than to evidence of leasehold rentals."
Dealing with the method of capitalisation of income, the learned author says at page 230:
"It is quite evident from the formula that the lower the rate of return applied, the higher the capitalized sum will be. However, the rate of return on money invested is dependent upon many varied factors: (I) Safety of principal; (2) liquidity of investment; (3) certainty of income; (4) possible market fluctuations; (5) appreciation of principal or income; and undoubtedly other elements too numerous to mention. The interest rate current in the security market must be considered, as well as the investment rate to be obtained from high grade bonds or common stocks and commodities traded on the several Exchanges."
12. It is evident from the above passage that the basic factor in applying the method of capitalisation of income for ascertaining the market value of a real property is the rate of return that an ordinary investor would reasonably get on his investment, having due regard to all relevant circumslances. Our attention has been drawn to a few decisions where the market value of lands has been fixed from 25 times to 33 1/3 times the annual income. The High Court of Madras seems to have taken a firm view that investment on landed property should be treated on a par with investment in guilt-edged securities, and that the market value of such a property should be equal to the amount that has to be invested in a guilt-edged security for bringing an income equal to the annual income of the property. In other words, if the rate of interest paid on guilt-edged securities is 3%, the market value of a landed property fetching an annual income of Rs. 3/-would be Rs. 100/-; that is to say 33 1/3 times the annual income. We shall only refer to a Division Bench decision of the Madras High Court in Radhakrishna v. Province of Madras, AIR 1949 Mad 171 wherein Rajamannar, C. J., after a review of its earlier decisions, stated:
"(5) After a consideration of all these cases, it appears to us that both on principle and on account of the similarity of facts, the valuation in this case should follow the basis adopted by King and Patanjali Sastri, JJ. in Land Acquisition Officer, Calicut v. Subba-rao, (1941) 2 Mad LJ 75 = (AIR 1941 Mad 684). There, as here, the property acquired was land with building thereon. The number of years' purchase was 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 the present case it appears from the judgment of the lower Court that it was not disputed that guilt-edged securities were carrying interest at three per cent, at the time of the acquisition. The annual rental value must therefore be capitalised at 33 1/3 years" purchase."
13. The above view has been followed by the High Court of Kerala in some of its decisions. In State of Madras v. Aissabi, 1957 Ker LT 1076 = (AIR 1958 Ker 67) and State of Kerala v. Govindan, 1962 Ker LT 811 the Court fixed 33 1/3 times the annual rent as the market value of land with buildings situate in a municipal town. The method of fixing the market value of land by treating it on a par with guilt-edged security has been adopted occasionally by other High Courts also. We are constrained to point out that this is an unrealistic method. One would not have erred grievously in adopting such a method for valuing landed property a few decades ago, when channels for investment of money were very limited, and investment on land was considered very prudent and safe. Yet allowance has to be made in the case of a land with building for recurring depreciation of the building, its age and probable period of future existence, besides other factors. In the case of guilt-edged securities, there is the assumption that the corpus is safe and not subject to diminution. At any rate, that is the basis on which the rate of interest obtained on such securities is adopted as the standard for determining the market value of land. That assumption does not apply to a land with building, since the building is subject to depreciation. No reasonable person would now invest on land, unless he can get as much return as can be obtained from any other investment. The rates of interest for guilt-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 increased. These are all relevant considerations in fixing the market value of land. We have already discussed in detail the various principles to be applied in determining the market value. Capitalisation of annual income is only one of the methods. Whether it is a suitable method in a given case, and if so, at what multiple of the annual income the market value can be fixed Would depend on a variety of circumstances. To put it briefly, the object is to ascertain what a willing vendor might reasonably expect to obtain from a willing purchaser, and the method that should be adopted to arrive at that amount should be the one most appropriate on the facts and circumstances of the case.
14. We shall now deal with the appeals on the merils. The property acquired in A. Section 340 of 1968 consists of 68 cents of land, a shop building and other improvements therein. The Land Acquisition Officer valued the land and improvements separately. Ho awarded Rs. 1,500/- per acre for the land, Rs. 2611.25 for the trees. Rs. 5,133/- for the shop building, and Rs. 228/- for a well therein. The trial Court followed the same method of valuation, and enhanced the value for land to Rs. 5,000/- per acre, for the shop building to Rs. 6,885/-. and for the well to Rs. 470/-. The value fixed for the trees was confirmed. Thus the total value was fixed at Rupees 13.029.25 exclusive of the solatium. Counsel for the appellant contended before us that the shop building was fetching a monthly rent of Rs. 175/-, and that the property should have been valued at least on the basis of the income, since in the case of land with building, that was the only proper method of ascertaining the true market value. He also submitted on the authority of some of the decisions referred to above that the market value should he fixed at 33 1/3 limes the annual income. We have already dealt with these legal contentions. The appellant produced three registered documents. Ext. A-3 dated 12-11-1962 and Exts. A-4 and A-5 both dated 14-11-1962 evidencing the lease of the three rooms in the building. The executants of Exts. A-4 & A-5 were examined as C. W. 2 and C. W. 3. They had no receipts to show that they had paid any rent under those leases. The acquisition in the case was sanctioned by the Government on 4-12-1962; and the notification under Section 3 (1) of the Act appeared in the Kerala Gazette dated 8-1-1963. The trial Court examined the evidence in detail, and held that these lease deeds were unreal; and that they were documents executed with the knowledge of the impending acquisition proceeding for supporting an inflated claim for compensation. We have examined the evidence and heard counsel for the appellant. We agree with the finding of the trial Court in this respect. It follows that there is no acceptable evidence regarding the income of the property. We may also add that capitalisation of rent received from a small shop building situate in a part of a comparatively extensive land is not a proper method for fixing the value of either the building or the land with the building. In our view the compensation fixed by the trial Court and the method adopted by it for that purpose are both correct, and call for not interference.
15. A. Section Nos. 390 and 391 of 1968 relate to the acquisition of 3 cents of land with a building situate in an important part of a small town in Kasaragod. The Land Acquisition Officer valued the land and the building separately. He fixed land value at Rs. 50/- per cent, and the value of the building at Rs. 11,982/-. The trial Court enhanced the land value to Rs. 500/- per cent. Regarding the building, the appellants claimed that it would fetch a monthly rent of Rs. 20/-. and that its market value should be fixed by capitalising the rental income. They produced five rent bonds, Exts. B-5 to B-9, executed by persons who were said to have been tenants of the five rooms in the building. One of them was examined as C. W. 2. The bonds related to a period much before the notification of the land for acquisition. There was nothing to show by way of rent receipts or books of account that the executants of the above bonds were real tenants. There were also no rent bonds from persons who were occupying the rooms at the time of the acquisition, and none of them was examined to prove what rent they were paying. On an examination of the bonds, it appeared to the trial Court that the bonds were written up at a stretch; and it came to the conclusion that they were documents created by the appellants for the purpose of supporting an inflated claim made before the Land Acquisition Officer. The trial Court, therefore held that there was no acceptable evidence regarding the income of the building, and that there was nothing to show that the value fixed by the Public Works Department and accepted by the Land Acquisition Officer was wrong. Before us, it was contended, as in the other appeal, that the evidence relating to the income of the building should have been accepted by the trial Court, and that the market value of the building should be fixed on the basis of the rental income by capitalisation. We have examined the evidence regarding the rental income. We agree with the reasons stated by the trial Court for rejecting that evidence. In the light of that finding, the question of fixing the market value on the basis of annual income does not arise in this case.
16. In the result, these appeals are dismissed. We consider that, in the circumstances of the case, the parties should bear their own costs; and it is ordered accordingly.
Subramonian Poti, J.
17. I had the advantage of going through the judgment of Isaac, J. and Viswanatha lyer. J. I would like to add a few words of mv own.
18. In cases of claims to compensation for land compulsorily acquired the enquiry by the Court is intended to find out the market value of the land. It is by now well settled that market value is the price of a willing purchaser may reasonably offer to a willing seller. I say 'reasonably' because there may he cases where the property may be of special value to the purchaser or he may be in urgent need of purchasing it at any, even a fancy, price, but such circumstances must be left out of consideration. So is the case with a vendor taking advantage of the situation of a seller who may be in need of disposing of the land at any price, even as a distress sale. Though it is easy so to explain market value difficulties arise in the practical application of the definition. Instances of sales of similar land in or about the same area may possibly be not available. It would be more so in the case of land on which buildings have been constructed. Possibly there may not be cases of sales in the locality of land with similar buildings. It may then be difficult to find the data for the enquiry as to what a willing purchaser may pay for similar land with similar buildings thereon. But the course the Court may adopt to determine market value is not circumscribed to this method. The object being to find out what the proper market value would be any method which would yield the result may be adopted by the Court. There cannot be preference for any one such method over the other. It was observed by the Supreme Court in (AIR 1959 SC 429) thus:
"It is not disputed that the function of the Court in awarding compensation under the Act is to ascertain in the market value of the land at the date of the notification under Section 4 (I) and the methods of valuation may be (I) opinion of experts, (2) the price paid within a reasonable time in bona fide transactions of purchase of the lands acquired or the lands adjacent to the lands acquired and possessing similar advantages and (3) a number of years purchase of the actual or immediately prospective profits of the lands acquired."
The enumeration is apparently not exhaustive. Braring in mind that the ultimate aim is to reach an objective decision on the question of market value it is for the Court to apply any other method if that would yield a more accurate result.
19. Sometimes the value of land with building thereon is determined by finding out the value of the land and the cost of the building separately and adding the two. Sometimes such value is determined on the basis of capitalising the income from the property. These may yield different results. If so, what is the value to be adopted? Quite often it is contended that the land owner is entitled to the best value for the land and therefore the method which gives that result which is to the better advantage of the land owner should be applied. The land cannot evidently have two or more market values and therefore there is no question of adopting more than one of such methods in any case. The Court is not concerned with finding out which method will result in the maximum advantage to the landowner but which approach will be more appropriate to reach the correct decision as to the market value of the land. That will depend upon the facts and circumstances of the case. Possibly in some cases it may even be necessary to keep in view more than one method. It was observed by the Supreme Court in (AIR 1972 SC 1417) after enumerating the various methods of determining market value thus:
"These methods, however, do not preclude the Court from taking any other special circumstances into consideration, the requirement being always to arrive as near as possible at an estimate of the market value. In arriving at a reasonable correct market value, it may be necessary to take even two or all of these methods into account inasmuch as the exact valuation is not always possible as no two lands may be the same either in respect of the situation or the extent or the potentiality nor is it possible in all cases to have reliable material from which that valuation can be accurately determined."
20. My learned brother Isaac, J. has illustrated the fallacy of applying one or other method uniformly in all cases. It may sometimes happen that the application of the method of capitalisation of income may not be a proper approach to find out the market value as in the case of a land with a substantial building on it away from any town, where rental value may be quite low. So would be the case of a break-up value method in the case of land with a building in a city having an inherent potential of yielding income quite disproportionate to the investment. It is evident therefore that there can be no straitjackcted formula as to the method to he applied uniformly in all cases of acquisition of lands with buildings.
21. Sometimes returns from buildings may be exceptionally high. But land with the same advantages in the locality may be available for purchase and if similar buildings are constructed on such land it may be possible to get the same income. Will a reasonable purchaser normally be willing to pay much more than what he would have to spend by way of land value and the value of the buildings? Not likely. In such a case the method of capitalisation of the income may not reflect the market value, as that term is understood. There may be pieces of land with buildings on them in important places in prominent cities. It is possible that at such places it may not be possible to purchase any similar land at any price so that any invesiment may not make similar buildings available. In such cases the breakup value method may not yield a proper result. The course to be adopted in each case, the appropriate method to be applied, must be in the judgment of the Court.
22. We have been taken through some decisions of the Supreme Court by counsel for the appellants in the case before us in an attempt to show that the Court has frowned upon the method of determining the market value of lands with buildings thereon, by adding the break-up values. Particular reference is made to the decision in AIR 1968 SC 1201 and AIR 1970 SC 564. Ws fail to find in these decisions any such categorical statement of the law, as rightly pointed out by my learned brothers Isaac and Viswunatha Tyer, JJ. The passage in the decision of the Supreme Court in (AIR 1972 SC 1417) which has been referred to by me earlier, on the other hand, categorically approves of the adoption of any one or other of the methods and even a combined application of these methods to determine land value.
23. Before closing, I must express my agreement with the views expressed by Isaac, J. as to the number of years purchase to be adopted for the purpose of capitalisation. Time there was when investment in landed properties was considered to be the safest form of holding assets. With the various legislations affecting agricultural property and in particular the laws relating to agrarian reforms and those affecting urban property such as rent control legislations investment in land has no longer the same appeal as it had two or three decades ago. Investments in stocks and shares, provided one is not too speculative, is considered worthwhile and it yields better returns. Even deposit of cash in Banks is attractive enough. The result is that today no prudent man ever thinks of invcsting in land or buildings unless he expects quite a pood return for his money. Possibly it may be said that investment in land may be advantageous as there may he appreciation in value. The temporary phase of appreciation of value of properties need not necessarily be taken by any investor as a perennial feature. Besides, when such possibility of phenomenal appreciation in prices is shown, the Court may consider it as indication of the potential of the property and in determining the number of years purchase for capitalisation this may have a hearing. 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 per cent. as yearly interest. T am only indicating that the ancient concept of return on gilt-edged securities as the basis for capitalisation may no longer be appropriate.
24. On the ultimate decision in the case. T am in entire agreement with my learned brothers.
G. Viswanatha Iyer, J.
25. I agree. In view of the importance of the question raised in the cases I wish to add a few words of my own.
26. One contention urged on behalf of the appellants is that the land and building must be valued as a single unit and not separately. There is no invariable rule like that Ordinarily the valuation must be on that basis. Decisions of the Supreme Court, namely, Abdulla Jan Mohammad Ganjee v. State of Bihar, 1967 (1) SCWR 214 and (AIR 1968 SC 1201) only show that the land and the building should not ordinarily be regarded as separate units. If there is no evidence to find out the value of the land and the building as a composite property on the basis of the value of similar and comparable properties in the neighbourhood or if the capitalization of the rent or other income received out of the property will not be a proper method in the particular facts and circumstances of the case, determination of the value on the basis that the land and the building are separate units cannot be said to be wrong and it cannot be said that the value so determinate is not a fair market value. This is how T understand the passage in the Supreme Court decision in (1967 (1) SCWR 214), paragraph 3, which reads thus:--
"The method adopted by the Courts below for valuation of the land and the building which were acquired as a composite unit was, in our judgment, not calculated to lead to the determination of a reasonably precise valuation. A building standing on the land and the land on which it stands may not for the purposes of the Land Acquisition Act ordinarily be regarded as separate units capable of being separately valued. The Court of First Instance in the normal course should have valued the land and building as a composite property by the evidence furnished by the value of similar and comparable properties in the neighbourhood or by capitalization of rent or other income received out of the property. But without objection the Courts below have dealt with the land and the building as separate units and we do not think that at this stage we would be justified in directing revaluation of the land and building as a single unit."
If the method adopted in finding out the value in that case by treating the land and the building separately was legally wrong, one would have expected a direction for revaluation of the land and the building as a simile unit by the Supreme Court. In the passage referred to above their Lordships only stated that ordinarily a building standing on the land and the land on which it stands may not for purposes of the Land Acquisition Act be treated as separate units capable of being, separately valued. Their Lordships again, were very careful in observing that the normal course is to value the land and the building as a composite unit. As the method adopted in that case was not objected to by the parties a revaluation was not directed. This is because a determination of the value of the land as a separate unit and the building also as a separate unit and aggregating the two values is not illegal. Paragraph 5 of the decision of the Supreme Court, namely (AIR 1968 SC 1201), no doubt, strongly supports the contention that the land and the building constitute one unit and the value of the entire unit must be determined with all its advantages and potentialities. But, that paragraph is not capable of being understood as restricting any other method of valuation for In the later paragraph, namely paragraph 6, Supreme Court has observed that the method which is generally resorted to in determining the value of the land and the buildings is the method of capitalization of the return. This shows that if the facts of the case require a different method of valuation that can be resorted to Further, in the light of the later decision of the Supreme Court in (AIR 1970 SC 564) at pp. 609 and 610, Paragraph 103, wherein it is stated thus :--
"The property to be acquired has ordinarily to be valued as a unit. Normally an aggregate of the value of different components will nut be the value of the unit."
The apparent rigour of the observation in (AIR 1968 SC 1201) is taken away. If the capitalization method of valuation is not a fair means of determining the value in some cases as illustrated by my learned brother Isaac, J. valuation of the land and the building as separate units and aggregating the two values cannot be said to be illegal. Which method of valuation is suitable or appropriate to a given case is always a matter for the Land Acquisition Officer and the Court to decide. The law requires payment of compensation on the basis of the market value. Various methods of determining the valuation are only helpful to find out the fair market value. That is why the Supreme Court in the latest decision, namely, (AIR 1972 SC 1417) emphasised that the Court may have to resort to more than ona method in arriving at the market value of the land.
27. In practice when one goes to purchase a land with a building the land value on the basis of the prevailing market rate in the locality is reckoned, the amount which may be required to put up a building similar to the building that is situate on the land is also reckoned and a value which will be more or less equal to the sum total of the above two values is offered as a price for the land and the building. Value based on the capitalization of the income is a method which is very rarely resorted to in these parts so far as my experience goes. I do not say that that is not in practice at all in this area. As a proposition, the method of valuation by capitalization is one feasible method. But, it is very rarely resorted to as a sole method of fixing the value of the land and the building for purpose of a sale. No doubt, the various methods of fixing the value have their own limitations, each by itself may not be accurate and that is why in fixing the market value in a given case, more than one method may have to be tried and a correct estimate arrived at.
28. In these cases the evidence let in by the appellants to prove the income from the properties has been shown to be unreliable. On coming to know of the proposed acquisitions some attempt is seen made at creating records to be used in the case as evidence. They cannot be acted upon. There is no evidence of sale of similar and com parable properties in the neighbourhood to fix the value of the land and the building as a single unit. A remand to fix the value of the land and the buildings as a composite unit would have been called for only if the method of valuation of the land and the building should always be as a single unit and based on the capitalization of the income or rent I have tried to show that that is not an invariable rule and therefore a remand is unnecessary. So, the valuation adopted by the Land Acquisition Officer and affirmed by the trial Court seems to be the only course possible in fixing the value in these cases.