Dr. Ramsetty Durgiah vs Government through the City Improvement Board

Jagan Mohan Reddy, J.—This is an appeal against the order and decree of the Nazim, Aaraish Balda, (Court of the City Improvement dated 28th Aban 1358F. awarding to the Appellant compensation of Rs. 3,091/- for the acquisition of his house and land. The Appellant had purchased the house and land for Rs. 2,000/- on 12-10-1932 which is now acquired by the City Improvement Board by their notification dated 13-8-1356F. As the Appellant did not appear before the City Improvement authorities a sum of Rs. 2,511/- was fixed as compensation and sent to the Court for confirmation.

The Aaraish Court summoned the Appellant who filed his claim on 14-2-1358F claiming a sum of Rs. 14,000/- for the said property, but the Aaraish Court allowed him, as already stated, a sum of Rs. 3,091/-. The learned advocate for the Appellant contends that on the basis of the decision of a bench of this High Court in Government of Hyderabad v. Govindu Bai AIR 1950 Hyd 70 ( v. 37) (A), compensation payable for acquisition of land and building in a municipal area should be on the capitalised value of the property calculated on the yield of 3% Government securities, viz. 33 and l/3rd per cent of the rental value minus 25% towards maintenance and rents etc. plus 15% towards disturbance charges.

The learned advocate for the Respondent contends that this is not the proper basis for computation of compensation which should be fourteen times the rental value or at the most twenty times, but nothing more. The contention of the learned advocate for the Appellant appears to be based on the case of The Land Acquisition Officer Vs. S.V. Subba Rao and Another, , in which King and Patanjali Sastri JJ., have held that in view of the rate of interest being 3% on Government securities, the method of capitalisation is to take 33 and l/3rd per cent years'' purchase.

This judgment was approved in the case of Radhakrishna Chettiar v. The Province of Madras (AIR 1949 Mad 171 v. 36) (C), in which Rajamannar, Officiating Chief Justice, after reviewing all the case-law held that where the property acquired was land with building thereon within the municipal area, the number of years'' purchase was arrived at by taking into account the interest yielded by Government securities at the time of the notification u/s 4(1) of the Act.

In a recent case a Bench of this High Court in Government of Hyderabad v. Govindu Bai (A), as already cited, accepted this principle and laid down that the annual rental value of the property minus one-fourth of it deducted towards costs of maintenance, repairs, and rents should be capitalised at 33 and l/3rd per cent having regard to the rate of interest prevailing in the State for the time being 3%. The rule laid down in the aforesaid cases in our view is based on an equitable presumption which should be applied to all lands arid buildings in the municipal area.

No doubt there is an unreported case of BadariNarayan v. State of Hyderabad C.A. No. 105/1 of 1950, D/- 10-9-1954 (D) in which another bench of this High Court had given 20 times the annual rent but in that case ho principle seems to have been enunciated except for the observation that the property having been purchased 30 years back and half of its life being over, it would meet the ends of Justice to capitalise the value at 20 years'' purchase. Although the principle laid down in the Madras and Hyderabad cases was not applied, it does not appear to have been dissented from.

It appears to us that the trend of decisions of the pre-Constitution High Courts also is not in favour of deductions towards depreciation. Nawab Mirza Yar Jung and Nawab Asgar Yar Jung in the case of Mohd. Ruknuddin v. Government 20 D LR 220 (E), had observed that where the value of the house is determined on the rent which it fetches, no depreciation is taken into account. In fact the rent of the house is assumed to be based upon the condition of the house at the time when the valuation is fixed which includes the depreciation. If depreciation was not included then the rent would have been higher.

Similarly in Mangni Ram v. Arjun Lal 25 DLR 498 (F), it was observed at p. 507 that depreciation of the house cannot be deducted on any principle. At the time when the house is being valued on a rental basis, repairs, maintenance and payment of tax are quite sufficient to maintain the house in a fit condition to earn the rent and if 25% is deducted from the rental value towards these items that would give a proper value of the house.

In Azmathunnisa Begum v. Government 34 D LR 655 (G) also Nawab Alam Yar Jung and Hasham All Khan have laid down that where valuation of a house is to be fixed on the rental value of the building the net valuation can only be arrived at after deducting the amounts necessary for repairs, payment of tax etc., and that if 25% is deducted from the annual rental value towards these amounts the net value will be arrived at.

It was further observed that the deduction of 25 per cent is only with respect to houses which require repairs etc., but houses which are in good condition 25% should not be deducted. It was there argued that depreciation should not be deducted and their Lordships agreeing with that submission held that in cases where the house is in good condition, no depreciation is deductible, but where this is not so, the deduction towards repairs and maintenance should be made and it is only after such deduction that you arrive at the value of the house.

To the same effect are the decisions in Radha- krishan v. Government 35 DLR 783 (H), and in Syed Abdul Razzack v. Government 37 D LR 676 (I), though in the latter case there appears to be an obiter observation of their Lordships to the effect that deductions towards rents etc. should only be 13%.

Having regard to the increase in taxes and repairs etc. it is in our view manifest both from the trend of the decisions of our own High Court as well as that of other High Courts that no amount is deductible towards depreciation & that the proper method of valuation is to first deduct 25% of the rental value towards repairs maintenance and taxes etc., after which having regard to the 3% yield of interest on Government securities and treating the house properties as guilt-edged investment, the valuation should be worked out on the basis of 33 and l/3rd per cent, purchase.

If on prior occasions the valuation was fixed as a lesser multiple of the rental value it is due entirely to the higher yield on Government securities which varied from 6% to 3 per cent, as also the increase in rents and taxes from time to time.

In our view the whole basis of fixing compensation for property which is compulsorily acquired against the will of the seller ought not to be based on the life of the building but upon the value of it to its owner. If a house property in a municipal area gives to its owner a steady income in the same way as if he had invested his monies in Government securities then the value of such property is the same as the value of Government securities yielding a similar income. With great respect we agree with the view expressed in AIR 1950 Hyd 70 ( v. 37) (A).

The next question is what is the annual rent which has to be fixed for the property in this case. We find from the evidence of one of the department''s own servants Akbar Hussain, D. W. 1 an overseer, that just before the notification in 1356F he had inspected the house and had completed the form and in that year the rental value of the building had been proved to be at Rs. 36/. per month. After this admission there seems to be no validity in the contention of the learned Advocate for the department that the rental value of the building was much less.

Apart from this the Appellant had produced the municipal tax receipts which also showed the rental value to be Rs. 36/- but it is said that since the receipt was issued in 1357P the rental value does not pertain to 1356F, the date upon which the property was acquired. We think there is no substance in this contention not only because of evidence of D. W. 1 but also because the receipt issued in 1357F pertains to 1356F. Having regard to the rental value of Rs. 36/- per month which amounts to Rs. 432/- per annum and after deducting therefrom 25% towards maintenance etc., the net annual rental value of the property Is assessed at Rs. 324/- per annum.

Having regard to this, 33 and l/3rd per cent, purchase of the rental value is Rs. 10,800/-. To this if 15% is added towards disturbance charges, the total compensation of the property acquired amounts to O. S. Rs. 12,420/-. In our view this is the compensation payable to the Appellant. The appeal is accordingly allowed. The lower Court''s decree is consequently varied and a decree for O. S. Rs. 12,420/- is awarded to the Appellant with costs.