9911796707
TMI Blog1984 (1) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... multiple of 121 should be applied in the computation of the capitalized value of the lands The appeals must succeed and are allowed. The judgments and decrees of the High Court are modified by directing that the compensation awarded for acquisition of land should be reduced by one sixth in these cases wherever the amount of compensation has been determined by the method of capitalization. The respondents shall get solatium at 15% on the compensation computed on the above basis and shall be paid interest at the rate decreed by the courts below - - - - - Dated:- 9-1-1984 - Judge(s) : A. P. SEN., E. S. VENKATARAMAIAH JUDGMENT The judgment of the court was delivered by SEN J.-The short question involved in this appeal by special leave and the further appeals under s. 54 of the Land Acquisition Act, 1894 ("Act" for short), directed against the judgment and decrees of the Karnataka High Court dated January 24, 1979, and in the connected appeals is whether there has been any error in principle or in law in the method of valuation arrived at by the courts below in adopting " fifteen " to be the multiple for computation of capitalized value of certain agricultural lands acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired lands were more or less similar in nature and contiguously situated. On a consideration of the evidence, the learned judge came to the conclusion that the lands affected were capable of yielding two crops in a year with assured irrigation facility, the first being of paddy and the second of jowar, groundnut, chillies, etc. As there was no other method of determining the market value of the land, the learned Civil Judge applied a multiple of 15 times the net annual profits. On appeal by the Special Land Acquisition Officer, the High Court also adopted the capitalized value at 15 years' purchase of the net annual profits but reduced the amount of compensation to Rs. 15,000 per acre for wet agricultural lands and Rs. 25,000 per acre for arecanut garden lands, i.e., depending upon the nature of the lands acquired. It would, therefore, appear that the High Court and the courts below have both adopted fifteen to be the proper multiplier for computation of the capitalized value of the lands acquired for the purpose of determining the amount of compensation payable for acquisition thereof. Shri Kacker, learned counsel appearing on behalf of the appellant, contends that the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the capitalized value. In Vyricherla Narayana Gajapatiraju v. Revenue Divisional Officer, Vizagapatnam [1939] LR 66 IA 104, the Privy Council adopted the traditional legal definition of value as the price at which the property would sell " as between a willing buyer and a willing seller"- In its narrowest sense, it is designed to preclude a valuation based on an assumed forced sale; the property must be appraised at what it would probably bring if the owner allowed a reasonable opportunity for negotiations. But the courts have invoked a mythical Willing buyer to justify a valuation higher than any attainable sale price. According to the Privy Council, " market value " of the land within the meaning of s. 23 of the Act is the price the property may fetch in the open market, if sold by a willing vendor unaffected by the special needs of a particular purpose. The owner is entitled to the value of the property in its actual condition at the time of expropriation, with all its advantages and with all its possibilities, excluding any advantage due to the carrying out of the scheme for the purpose for which the property is acquired. It is not only realized possibilities but also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omic factors such as the prevailing rate of interest ill money investments. The return which an investor will expect from an investment will depend upon the characteristic of income as compared to that of idle security. The main features are : (1) security of the income; (2) fluctuation; (3) chances of increase ; (4) cost of collection, etc. The most difficult and yet the most important and crucial part of the whole exercise is the determination of the reasonable rate of return in respect of investment in various types of properties. Once this rate of return and, accordingly, the rate of capitalization are determined, there is no problem in valuation of the property. The traditional concept of capitalization was indicated by this court in Rustom Cavasjee Cooper v. Union of India [1970] 3 SCR 530; 40 Comp Cas 325 (SC). It was stated to be (p. 383 of 40 Comp Cas) : " 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 of the notice of acquisition. " It is thus clear from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l exchanges.' The principle deducible from the above passage is that the basic factor in applying the method of capitalization of income for ascertaining the market value of property is the rate of return that an ordinary investor would reasonably get on his investment, having due regard to all the relevant circumstances. In the classical economic sense, as adopted by the Privy Council in Vyricherla's case [1939] LR 66 IA 104, the meaning to be placed upon the phrase " market value " of the land under s. 23 of the Act is the price at which the land acquired could actually be sold at the relevant time, i.e., on the date of the notification under s. 4(1) of the Act by a fictitious willing buyer in a hypothetical market, with the qualification that a forced sale is not to be assumed. The price at which the property would sell " as between a willing buyer and a willing seller " raises the problem of valuation. The value of any object of wealth is simply a capitalization of the services or income which actual or potential owners of the property expect to derive from it, i.e., earning power as basis of valuation. The rule of number of years' purchase is not a theoretical or legal r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the land but also something in addition to that as compensation for his trouble in attending to the land and for the risks involved in the cultivation of land. It was observed that although the tenants might have agreed to pay him a fixed rent in money, yet if a full crop was not raised on the land either through failure of rain or because of pests or for any other reason, it was extremely difficult for the landlord to realize the rent. For these reasons, the landlord naturally expected an appreciably larger return than he would expect from gilt-edged securities which he left in the bank and for the realization of the interest of which he is put to no trouble whatsoever. It would be unrealistic to adhere to the traditional view of capitalized value being linked to gilt-edged securities when investment in fixed deposits with nationalized banks, National Savings Certificates, Unit Trusts and other forms of Government securities and even in the share market in the shape of blue chips command a much greater return. More secure the capital and regular the return, the lesser the rate of interest. Most secured kind of investment is Government securities or deposits with scheduled ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciple as to the true multiplier of " thirteen " applicable in determining the capitalized value of about 70,000 acres of agricultural land located in the Kangra valley in the State of Himachal Pradesh, where the notification under s. 4(1) of the Act had been issued in the years 1962 and 1963, and where there was no evidence of comparable sales of similar lands in the Kangra valley. After referring to the judgment of this court in Oriental Gas Co. Ltd.'s case [1979] 1 SCR 617 (SC), and several other decisions, one of us (Venkataramiah J.) observed (P. 1195): " The number of years' purchase has gradually decreased as the prevailing rate of interest realisable from safe investments has gradually increased the higher the rate of interest, the lower the number of years purchase. This method of valuation involves capitalizing the net income that the property can fairly be expected to produce and the rate of capitalization is the percentage of return on his investment that a willing buyer would expect from the property during the relevant period. " The court explained that although at one time it was felt that interest on gilt-edged securities or Government bonds should alone be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal in agricultural lands would ordinarily expect a return of 2% to 3% more than what he could obtain from gilt-edged securities or other forms of safe investment such as fixed deposits in scheduled banks, National Savings Certificates, Unit Trusts, et cetera, or on blue chips, i.e., on stocks and shares in the public or private sector which yield a much greater return. In regard to the investment in agricultural lands, there are many imponderables inasmuch as the investor runs a much greater risk than the risk that he runs in investment in housing which consists in vagaries of weather and other uncertainties. There is no security of principal, no liquidity of investment nor any certainty of income. The appreciation of principal or income is also uncertain. The reasons for these is that agricultural lands are not readily transferable under the various land reform legislations, e.g., laws relating to ceiling on agricultural holdings under the existing, State laws and tenancy laws which place restrictions on transfer of such lands with concomitant danger of effacement of the rights of the absentee landlords and the creation of rights in the tillers of the soil. In evaluating the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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