LAND ACQUISITION OFFICER v. PUTTEGOWDA — 1975 DIGILAW 34 (KAR)

( 1 ) THESE are 6 revision petitions preferred by the Special Land Acquisition Officer, hemavathi Reservoir Project, Hassan, against the judgment and decree of the Court of the Dist Judge, Hassan, in MAs. 32, 36, 33, 41, 35 and 43 of 1974 respectively, affirming the Award and Decrees of the Court of the Civil Judge, Hassan in LAC Nos. 329, 333, 330, 342, 332 and 344 of 1972 respectively on his file. ( 2 ) AGRICULTURAL lands classified as wet and dry situated in Basavanaikanahalli village in Hassan Dist were acquired for the Hemavathi Reservoir project, pursuant to the Preliminary Notification under S 4 (1) of the Land acquisition Act, published in the Mysore Gazette on different dates in the year 1971. The) Land Acquisition Officer in the Awards made by him under s. 11 of the Act, fixed the market value of the lands by following the capitalisation of net income method He arrived at the net income for dry lands at Rs. 167 an acre per annum; and for dry lands at Rs. 320 an acre perannum. He employed the multiple of 15 for the purpose of capitalisation end thus arrived at the market value of Rs. 2,505 an acre for dry lands and rs. 4,800 an acre for wet lands. The claimants not being satisfied with the offer of the LAO, sought reference to the Court under S. 18 of the Land acquisition Act. ( 3 ) BEFORE the learned Civil Judge the claimants did not adduce any evidence of transactions of sale of similar lands. They gave oral evidence of the income which they were said to have been getting. That evidence was not corroborated by any independent material and rightly, was not accepted by the learned Civil Judge. The learned Civil Judge accepted the income of the lands as estimeted by the LAO and he agreed with the LAO that the net income of the dry lands was Rs. 167 an acre per annum. In regard to the wet lands, however since the LAO had made an allowance of more than 50% towards cost of cultivation, the learned Civil Judge being of the opinion that 50% of the gross income was sufficient allowance for cultivation expenses, estimated the net income of the wet lands at Rs. 350 an acre. 167 an acre per annum. In regard to the wet lands, however since the LAO had made an allowance of more than 50% towards cost of cultivation, the learned Civil Judge being of the opinion that 50% of the gross income was sufficient allowance for cultivation expenses, estimated the net income of the wet lands at Rs. 350 an acre. The learned Civil Judge however, employed the multiple of 20 for the purpose of capitalisation of net income and thus fixed the market value of wet lands at Rs. 7000 an acre and that of dry lands at Rs. 3,340 an acre. A common award was passed and on the said basis separate decrees were made in favour of the claimants. ( 4 ) THE Land Acquisition Officer being aggrieved by the Award and decrees of the learned Civil Judge, preferred 6 appeals in the Court of the dist Judge, Hassan Before the learned Dist Judge, the main contention urged on behalf of the LAO was that the learned Civil Judge was in error in adopting the multiple of 20 instead of the multiple of 15 and that there was no, material before the learned Civil Judge to employ the multiple of 20 for the purpose of capitalisation of the net income. That contention of the LAO was rejected by the learned Dist Judge and the reasoning may be stated in his own words ;" The only attack against the enhanced valuation however that has been made by the Govt Pleader is that the Civil Judge has gone wrong in adopting the multiple of 20 instead of 15. There is no hard and fast rule that in any particular case either the multiple of 15 or 20 should be adopted. Whether the multiple of 15 or 20 should be adopted in a particular case for arriving at the valuation of the lands by the capitalistion method would depend upon the facts and circumstances of that case. If the lands are of good quality and valuable, then it would be reasonable to hold that the multiple of 20 should be adopted. But, if the lands are of poor or average quality, then, having regard to the uncertainty of returns of investment on lands, in view of the land reforms and other measures the multiple of 15 will be reasonable multiple to be adopted. But, if the lands are of poor or average quality, then, having regard to the uncertainty of returns of investment on lands, in view of the land reforms and other measures the multiple of 15 will be reasonable multiple to be adopted. " ( 5 ) THE learned Dist Judge haying affirmed the award and decrees of the learned Civil Judge, the LAO has approached this Court for relief under section 115 of the CPC. The sola question for determination in these revision petitions is whether there is any ground calling for initerference in revision because the learned Dist Judge as well as the learned Civil Judge have employed the multiple of 20 for the purpose of capitalisation in determining the market value of the lands. ( 6 ) THE capitalisation of net income method is one of the well-known modes of valuation of immovable property. In the instant case the claimants have not adduced any evidence of transactions of sale of similar lands. Therefore, the only other course left was to evaluate the lands by adopting the capitalisation of net income method. The net income as estimated by the learned Civil Judge and affirmed by the learned Dist Judge rannot be questioned in these revision petitions and rightly, they have not been challenged. The Land Acquisition Officer, as stated earlier, has employed the multiple of 15 for the purpose of capitalisation apparently on the basis that an investor in agricultural lands in this ans a, in about the year of the Preliminary notification i. e. in 1971, would expect at least a modest! return of 62/3 per cent. ( 7 ) IN Spl LAO v. Mallesha, 1975 2 Karl. J. 74. this Court, while disposing of twq appeals arising undar the Land Acquisition Act, has laid down the principles for determining the number of years' purchase value thus :" In the absence of evidence of transactions of sale of similar lands, one of the well-known methods of valuation is the method of capitalising the net income by employing a proper multiple, which is called the number of years' purchase value. The number of years purchase value depends upon the rate of return which a prudent investor in the class of property would expect in the relevant year. The number of years purchase value depends upon the rate of return which a prudent investor in the class of property would expect in the relevant year. A person investing his capital in agricultural lands ordinarily expects a return of 2% to 3% more than what he could obtain from Gilt-edged Security. Govt Security is Gilt-edged Security. When the rate of return has to be determined the valuer has to start with the rate of return from gilt-edged Security in the year 1971. " ( 8 ) IN the Govt of Karnataka publication called ' Finance Accounts for 1972-73 ' at page 180, it is seen that the rate of interest on the mysore State Development Loans issued in the years 1967 to 1971 and 1972 was uniformly 52/4%. Mysore Govt's Loan is also Gilt-edged security. Therefore, when the Govt Securities earn 53/4% return, an investor in agricultural lands would naturally expect a higher rate of at least 7% return. If an investor in agricultural lands like dry and wet lands in the State would expect a minimum of 7% return in the year 1971, the proper multiple to be employed for the purpose of capitalisation cannot exceed 15 which is the multiple adopted by the LAO. ( 9 ) THE above decision clearly concludes this matter. But, Sri B. T. Parthasarathy, learned Counsel for the respondents, submitted that this Court has not cited any authority for the proposition that an investor in agricultural lands ordinarily expects 2 to 3% more than what he could obtain from Gilt-edged Security. It is no doubt true that this Court has not cited any authority for that proposition because) it is so well-known and so well settled. Out of due respect for the learned Counsel for the respondents, I will cite a few authorities wherein it has been laid down that in the case of valuation of agricultural lands on the basis of capitalisation of net income method, the would be purchaser naturally expects a larger return than he would expect from Gilt-edged Security. In Revenue Divl Officer v. Varadachari, AIR. 1944 Mad. 271. In Revenue Divl Officer v. Varadachari, AIR. 1944 Mad. 271. Horwill, J,, delivering the judgment of the Bench stated thus :" Whatever may be said with regard to a melwaram interest in a zamindari land or a vacant site, it is difficult to accept the current rate of interest on gilt-edged securities as a safe guide to the multiple to be applied to the annual profits on ryotwari land. The landlord in such cases not only expects to get a return on the capital invested on 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 lands. Although the tenants may agree to pay him a fixed rent in money; yet if a full crop is not raised on the laid either through failure of ram or because of pests or for any other reason, it is extremely difficult for the landlord to realise the rent. For these reasons, the landlord naturally expects an appreciably larger return than he would expect from gilt-edged securities, which he leaves in the bank and for the realisation of the interest on which he is put to no trouble whatsoever. " ( 10 ) THE above statement was affirmed by another Division Bench of the Madras high Court in Lakshmi Narasimha v. Revenue Divl Officer, AIR. 1949 Mad. 902. where, rajamannar, CJ. , stated that the Bench entirely agreed with the statement of horwill, J. referred fo above. Moleod, CJ. , of the Bombay High Court has also stated the same principle in Jivaraj Soniram Patdar v. Asst Development Officer where the learned Chief Justice has stated thus :" When at the date of the acquisition gilt-edged stock was realising 6 percant it is doubtful whether anyone would have been anxious to purchase the produce of mango trees unless with the expectation of realising 8 to 10 percent profit on his money, apart from the question that the mango crop is an extremely uncertain one so that the Judge has valued the portion of the land which carries mango trees far too high. "m. N. Dange in book Valuation of Immovable Properties, at page 21, while discussing the principles of valuation, has stated thus :" Under the above circumstances, one cannot argue out a case as the interest rate for capitalisation should be taken as low as 4 to 5%. It is amply clear that the rate of interest which will satisfy a prospective buyer will have to be more, comparing to the other forms of investments. Recent trends show that all India industrial securities average amount to 7 per cent. This will also tally with the ' Unit Trust' which is giving the tax free interest at a rate of 7. 25 per cent. Hence it is obvious that a man with capital will not invent in the landed property, if he is getting an yield below 7% considering the disadvantages of the property market such as loss of time in transfer and less liquidity of the capital, litigation problem which give the probability of spending extra amount of money, will have to be considered and 1 to 2% must be added to make the yield attractive for a willing purchaser. In fact, the rate of interest for capitalisation must be minimum 9% and can also be considered as 10 to 12% depending upon the class of the property and such other factors. " ( 11 ) C. A. GULANIKAR in his commentary on the Gift and Wealth Acts, 1973 edn, at page 568 under the heading " Rate of Capitalisation" has stated thus :" The National Council for Applied Economic Research and national Building Organisation had conducted a study in 1969 regarding the return from house properties in Delhi. The finding of the study was that, in the case of ordinary residential buildings, expected rate of return was 8% or 12 years purchase. Similar studies for other cities are not available. However, another finding is of considerable significance. People believe that investment in housing is more secure than other forms of investments and compare well with gilt-edged securities in respect of security of investment. Investment in housing involves certain amount of labour and effort such as maintenance, collection of rent etc. The rate of capital expected is therefore, 1 to 1% above the rate of giltedged securities at the relevant point of time. Investment in housing involves certain amount of labour and effort such as maintenance, collection of rent etc. The rate of capital expected is therefore, 1 to 1% above the rate of giltedged securities at the relevant point of time. " ( 12 ) THUS, it is clear that even in the case of property, in the capital of india, the rate of return expected is 1 to 1% more than what is expected from Gilt-edged Security. Agricultural lands are not freely transferable under the existing State laws. It is only bona fide agriculturists who cultivate the lands personally that can buy such lands; lands cannot be leased out. With these restrictions, a prudent investor expects a much larger return than what a Gilt-edged Security fetches. The burden was clearly on the claimants to show that the multiple employed by the LAO was not the proper multiple and that an investor in agricultural lands expects a much lower return. No such evidence was placed before the Court. The learned Civil Judge gave no reasons whatever for adopting the multiple of 20. The reason given by the learned Dist Judge is patently untenable sri Parthasarathy rightly does not support the same. ( 13 ) SRI Parthasarathy however, submitted that in revision petitions under 8. 115 CPC this Court will not be justified in interfering with the judgments of the Courts below. When there is a clear error or illegality in the matter of applying the correct principles governing the method of valuation, this Court will be justified in interfering in revision. I asked Sri Parthasaraty, whether if the learned Civil Judge or the learned Dist Judge had employed the multiple of 5 for the purpose of capitalisation, this Court could have refused to interfere under S. 115 CPC and he conceded that to such a case this Court would be entitled to interfere in revision. Therefore the objection raised by the learned Counsel for the respondents is untenable. ( 14 ) FOR the reasons stated above, I allow this batch of revision petitions. The market value of the lands in question has to be fixed by employing the multiple of 15 as was done by the LAO. Thus worked out, the market value for wet lands comes to Rs. 5,250 an acre and for dry lands, it works out to Rs. 2,505 an acre. The market value of the lands in question has to be fixed by employing the multiple of 15 as was done by the LAO. Thus worked out, the market value for wet lands comes to Rs. 5,250 an acre and for dry lands, it works out to Rs. 2,505 an acre. The claimants will be entitled to the usual solaun at 15% and interest at 5% p. a. on the enhanced amount of compensation from the date of taking possession of the lands till payment. The judgment and Decree of the Court below are modified accordingly. In the circumstances, the parties are directed to bear their own costs. --- *** --- .