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CASE NO.: Appeal (civil)  9937 of 2003

PETITIONER: Union of India                                           

RESPONDENT: Savjiram and Anr.                                                

DATE OF JUDGMENT: 17/12/2003

BENCH: DORAISWAMY RAJU & ARIJIT PASAYAT         

JUDGMENT: J U D G M E N T

1 9771 2000 5 10062-64 2003 1 13692-94 2000 5 10061 2003 1 11709 2000 5 10025-10060 2003 1 16975-17010 2000 5 9938-10024 2003 1 16836-16922 2000 5 10065-10073 2003 1 5966-5974 2001

ARIJIT PASAYAT, J

       Leave granted.

       In these appeals, two interesting questions of primal importance  arise for consideration. They relate to paras 43 and 44 of the Land  Acquisition Manual of Madhya Pradesh (in short the ’Manual’) applicable  to valuation of lands acquired in the State of Madhya Pradesh.

Background facts sans unnecessary details are as follows:

               In exercise of powers under Sections 4 and 6 of the Land  Acquisition Act, 1894 (in short the ’Act’), the State of Madhya Pradesh  acquired certain land for the benefit of Union of India in the town of  Mhow. On these acquired land, land owners had also constructed their  houses or structures. In the proceedings for determination of  compensation before the Land Acquisition Officer (in short the ’LAO) in  respect of land and the houses/structures  standing on the land, one of  the question that arose was as to how the valuation of houses/structures  was to be made. The LAO determined the compensation of house after  deducting 5% towards depreciation. According to LAO, the houses are also  subject to depreciation and accordingly he deducted 5% from the total  valuation of house and compensation in so far as it related to house was  determined.

       At the instance of landowners, the matter was referred to the  civil court under Section 18 of the Act. Before the civil Court, the  land owners’ contention was that LAO erred in deducting 5% by way of  depreciation from value of the house. According to them, there was no  need to deduct 5% by way of depreciation. The learned reference Judge  accepted the aforesaid contention of land owners. In his opinion, there  was no question of any deduction of depreciation while calculating the  valuation of house. Accordingly, the direction to deduct 5% by way of  depreciated value of house was held to be bad and it was directed that  the land owners will get the full valuation of house without deduction

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of 5% as determined by the LAO. This is what the learned reference Court  held in favour of land owners in para 13 of its  award:

       "Therefore he has right to get the amount on  account of 5% depreciation which has been deducted  from the amount of award."                                   Against the award of the LAO, the Union of India filed appeal  before the Madhya Pradesh High Court under Section 54 of the Act.  Essentially two points were raised before the High Court. The first  question related to the question regarding grant of depreciation. The  other related to the question about the deductions, if any, to be made  for the value of the materials made over to the original proprietor of  the land acquired. The High Court found that there was no scope for any  determination for depreciation and also for making any deduction for the  value of materials made over. Accordingly, the appeal filed by the Union  of India was dismissed.  

       In the present appeals, the two points urged before the High Court  were re-iterated  with reference to paragraphs 43 and 44 of the Manual.  It was submitted that while making the valuation, the age of the  building has necessarily to be taken note of and, therefore,  depreciation has to be granted per force. So far as the value of  materials made over to the proprietors is concerned, it is submitted  that in terms of para 43, option is given to the owner to remove any  house, building or trees standing on the land to be acquired and the  value of such materials as determined in the award has to be deducted  from the compensation. In the instant case option was given to the land  owners who had removed the materials. Reference is made to a letter of  the LAO, Mhow, Distt. Indore in this regard. In essence, therefore, the  stand is that the valuation as done by the Reference Court is  unsustainable.  

       Per contra, learned counsel for the claimants-land owners  submitted that there is no scope for any depreciation when the present  market value is to be determined in terms of para 44. It is the  valuation of the land along with infrastructure standing thereon which  has to be valued. There is no question of making any deduction on the  ground of depreciation for any property permitted and purported to be  removed. It was further urged that large number of claimants did not  remove anything and this was found to be factually the position by the  Reference court.  

       For deciding the issue relating to grant of depreciation and  deduction of materials, paras 43 and 44 of the Manual need to be quoted.  They read as follows:

       "43: If any house, building or trees standing  on the land to be acquired should not be required by  the Government, the owner may be allowed the option  of removing it within a reasonable period, to be  fixed by the Collector, in which case the value of  such materials, as determined in the award, will be  deducted from the sum payable as compensation, or if  compensation has been already paid will be recovered  from the owner prior to the removal of the materials.

       44: Compensation for houses or buildings should  be calculated on the present value of the materials  plus cost of construction at present rates, less the  value of any materials made over to the proprietor:

       Provided that, if the buildings have fallen  into disuse, compensation should be allowed on the

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present value of the materials only. Separate  compensation should be given for the land on which  the buildings stand.

       When, however, the building and its site  together constitute a single property, having a  market value as a whole it is unnecessary to go into  details of cost of construction, value of materials  and value of site. The market value of the property  as a whole can be ascertained with reference to the  rent that it brings in to the owner, or with  reference to the ascertained sale price of similar  buildings and their sites".          

       A bare reading of para 44 shows that it is a method of calculation  indicated relating to the computation of the compensation. The  compensation for houses and buildings are required to be calculated on  (a) the present value of materials (b) in addition to the cost of  construction at present rates. Both the components for working out the  compensation relate to present value of the materials and cost of  construction at present rates less the value of any materials made over  to the proprietor. Obviously, the calculation has to be done on the  basis of the present value or the present rates, as the case may be. The  expression ’present’ means in existence at the time at which something  is spoken or written, being in a specified place, thing. Grammatically,  it means denoting a tense of verbs used when the action or event  described is occurring at the time of utterance or when the speaker does  not wish to make any explicit temporal reference. It also means the time  being, now. Commonly, it denotes existence of a particular thing or a  matter at the time of consideration. Obviously therefore after arriving  at the cost of construction at the prevalent rate at the time of fixing  the compensation or working out the value of the materials there is no  scope for making any further deduction.  

       Generally speaking depreciation is an allowance for the diminution  in the value due to wear and tear of capital asset employed by an  assessee in his business. Black’s Law Dictionary (5th Edn.) defines  depreciation to mean, inter alia:

       "A fall in value; reduction of worth. The  deterioration, or the loss or lessening in value, arising  from age, use and improvements, due to better methods. A  decline in value of property caused by wear or obsolescence  and is usually measures by a set formula which reflects   these elements over a given period of useful life of  property. Consistent, gradual process of estimating and  allocating cost of capital investments over estimated  useful life of asset in order to match cost against  earnings."

       Parks in Principles $ Practice of Valuation (5th Edn., at p.323)  states that as for building, depreciation is the measurement of wearing  out through consumption, or use, or effluxion of time. Paton has in his  Account’s Handbook (3rd Edn.) observed that depreciation is an out-of- pocket cost as any other costs. He has further observed that the  depreciation charge is merely the periodic operating aspect of fixed  asset costs.  

       Above position was noted in Mysore Minerals Ltd., v. Commissioners  of Income Tax, Karnataka, Bangalore (1999 (7) SCC 106).  

       According to Websters’ New Word Dictionary, "depreciation" means  "a decrease in value of property through wear, deterioration or

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obsolescence; the allowance made for this in book-keeping, accounting  etc.".

       To put it differently, depreciation is the measure of the  effective life of an asset owing to use or obsolescence during given  period.  

Therefore, the stand of the appellant-Union with regard to  depreciation has no substance.  

The other relevant question which needs to be determined is the  essence of what is provided in paras 43 and 44 of the Manual. A bare  reading of para 43 shows that when any house, building or trees on the  land to be acquired, should not be required by the Government. The owner  is given the option of removing it within a reasonable period to be  fixed by the Collector. The option is to be given by the Collector and  it is for the owner  to avail the option and remove the materials within  such time as may be fixed by the Collector. Once the option of removing  the articles is exercised, the value of such materials has to be  deducted from the sum payable as compensation, in case payment has not  been made already. In case compensation has already been paid, it is to  be recovered from the owner prior to removal of articles. Under Para 43  at first Government has to decide whether the house, building or trees  standing on the land are required by the Government or not, and in case  it is not required the option of removal is given. As provided in Para  44, from the compensation worked out on the basis of procedure laid down  in the said para, value of materials made over to the proprietor has to  be deducted. The combined reading of paras 43 and 44 make the following  position clear. Firstly, the Government has to take a decision whether  the house, buildings and trees standing on the land are required by the  Government. In case it is not required, the owner is allowed the option  to remove the house, building or the trees as the case may be, within a  reasonable period. The period has to be fixed by the Collector and the  value of materials removed is to be determined in the award. The amount  determined has to be deducted from the sum payable as compensation, in  case it has not been paid; and if it has already been paid, then there  shall be recovery of the amount from the owner prior to the removal of  the materials. The value  of the materials made over to the proprietor  has to be deducted from the compensation.  

According to the Union, the option was given to the owners and  they had in fact removed the materials. This assertion is disputed by  learned counsel for the claimants. According to him, considering the  large number of persons whose lands were required, there is no question   of any removal of the articles and deduction as contemplated in paras 43  and 44 of the Manual. In any event, when acquisition is of the land with  infrastructure,  there is no scope for making further deduction.  

       Whether the option of removal was given to the owner of the land  is a question which has to be factually decided. The appellant has  placed on record a letter issued by the concerned authorities showing  that such option of removal was given. On affidavit it has further been  stated that the materials were in fact removed. This assertion, as noted  above, is seriously disputed by learned counsel for the claimants. Both  the Reference Court and the High Court do not appear to have taken note  of the documents on which reliance is placed by the Union and  objectively considered the claims, in detail. In the fitness of things  therefore, the Reference Court should decide as to whether there was any  removal of the materials as claimed by the appellants or there was no  removal as asserted by the claimants-respondents.  Since the matter is  pending for a long time, it would be proper if the Reference Court  decides this question alone permitting the parties to place materials  and/or evidence in support of their respective stands as to the removal  of the materials alone. After giving proper opportunities a fresh  decision shall be taken by the Reference Court. We make it clear that we

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have not expressed any opinion on the merits of the case so far as that  issue is concerned. The appeals are allowed to the aforesaid extent and  the matter is remitted back to the Reference Court for adjudicating the  limited question as indicated by us (supra) as expeditiously as  possible, without delay. There shall be no order as to costs.