UNION OF INDIAversusSAVJIRAM AND ANR.

A                              UNION OF INDIA
                                        v.
                            SA VJIRAM AND ANR.

                             DECEMBER 17, 2003

B           [DORAISWAMY RAJU AND ARIJIT PASAYAT, JJ.]

         Land Acquisition Act, 1894.

         Sections 4, 6, 18, 54-Land Acquisition-Computation ofcompensation
C -State Manual providing for calculation of co;npensation at present value
    of materials and cost of construction at present rates-State claiming
    deduction for depreciation-Held, there is no scope for making any
    deduction towards depreciation while calculating present value and
    rates-State Manual providing for deduction of value of materials on land
    made over to land owners-Conflicting claims in respect of removal of
D   materials-Held, matter remanded to Reference Court for adjudicating
    claims as to removal of materials alone with permission to parties to place
    materials and evidence on record-Land Acquisition Manual of Madhya
    Pradesh-Paras 43 and 44.

E         Words & Phrases- 'Depreciation '-Meaning of in common par-
    lance.

         State of Madhya Pradesh in exercise of powers under Sections 4
    and 6 of Land Acquisition Act, 1894 acquired land for benefit of
F   appellant-Union of India on which respondents-land owners had
    constructed houses or structures. Land Acquisition Officer (LAO)
    determined compensation after deducting 5% towards depreciation
    from total valuation of house. Civil Court in reference under Section
    18 of the Act held that land owners were entitled to full valuation of
    house without deduction of depreciation of 5%. Union of India filed
G   appeal under Se~tion 54 of the Act against the award of LAO which
    was dismissed by the High Court. Hence, this appeal by the Union of
    India.

         Appellant contended with reference to paragraphs 43 and 44 of
H the Land Acquisition Manual of Madhya Pradesh that valuation done
                                       1006
                         U.O.I. v. SAVJIRAM                         1007

by Reference Court is unsustainable as it did not allow for depreciation A
and also for deductions for the value of articles made over to land
owners.

      Respondents contended that there is no scope for any depreciation
when present market value is to be determined in terms of para 44 of B
the Manual; and that large number of land owners did not remove any
articles standing on the land.

     Partly allowing the appeal, the Court

      HELD : 1.1. Generally speaking depreciation is an allowance for C
the diminution in the value due to wear and tear of capital asset
employed by an assessee in his business. To put it differently, depre-
ciation is the measure of the effective life of an asset owing to use or
obsolescence during given period. [1012-C; 101~-A]

    Mysore Minerals Ltd. v. Commissioners of Income Tax, Karnataka,        D
Bangalore, (1999] 7 SCC 106, referred to.

     Black's Law Dictionary (5th Edn.); Parks in Principles & Practice
of Valuation (5th Edn., page 323); Paton's Account's Handbook (3rd
Edn.) and Webster's New Word Dictionary referred to.
                                                                           E
     1.2. A bare reading of para 44 of Land Acquisition Manul of Madhya
Pradesh sho"'~ 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 material
(b) in addition to the cost of construction at present rates. Both the F
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. G
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 material there is no scope for making any further deduction.
Therefore, the stand of the appellant-Union of India with regard to
depreciation has no substance. (1011-F-H; 1012-A, B]                         H
    1008              SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.
A        2.1. 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 by option to
    remove ·the house, building or the trees as the case may be, within a
B   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
C   has to be deducted from the compensation. (1013-E-G)

          2.2. According to Union of India, the option was given to the
    owners and they had in fact removed the materials. This assertion is
    disputed by the claimants. Both the Reference Court and the High
D   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-
E   respondents. After giving proper opportunities a fresh decision shall
    be taken by the Reference Court. The matter is remitted back to the
    Reference Court for adjudicating the limited question as indicated, as
    expeditiously as possible, without delay. [1013-H; 1014-A-F]

         CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9937 of
F   2003.

        From the Judgment and Order dated 8.3.2000 of the Madhya Pradesh
    High Court at Indore in F.A. No. 247 of 1999.

                                     WITH
G
         C.A. Nos. 10062-64, 10061, 10025-60, 9938-10024, 10065-73 of
    2003.

         N.N. Goswami, Ms. Indira Sawhney for Ms. Sushma Suri and Mrs.
H   Anii Katiyar (NP) for the Appellants.
                 U.0.1. v. SAVJIRAM [PASAYAT, J.]                    1009

    A.K. Chitale, M.D. Arya, Jai Mangalwadi for Niraj Sharma, B.S. A
Banthia and Naveen Sharma for the Respondents.

     The Judgment of the Court was delivered by

     ARIJIT PASAYAT, J.: Leave granted.
                                                                              B
     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.
                                                                              c
     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 owne~s had also constructed their houses or structures. D
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 depre- E
ciation. 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 rf landowners, the matter was referred' to the civil
court under Section 18 of the Act. Before the civil Court, the land owners' F
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 q~stion
of any deduction of depreciation while calculating the valuation of house. G
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 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:                                             H
    1010               SUPREME COURT REPORTS [2003) SUPP. 6 S.C.R.

A                 "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
B . two points were raised before the High Comt. 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
C 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.
D   It was submitted that while making the valuation, the age of the building
    has necessarily to be ta~en 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
E   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.
F
          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
G   questi,wl 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
H   of materials, paras 4'3 and 44 of the Manual need to be quoted. They read
                 U.0.1. v. SAVJIRAM [PASAYAT, J.]                    1011

as follows:                                                                 A
              "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 B
         such materials, as determined in the award, will be deducted from
         the sum payable as compensation, or if compensation has been
         already paid wi 11 be recovered from the owner prior to the removal
         of the materials.

               44: Compensation for houses or buildings should be calcu- C
         lated 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, D
         compensation should be allowed on the 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 E
         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 asce1tained with reference to the rent that it brings
         in to the owner, or with reference to the asce1tained sale price of
         similar buildings and their sites".                                  F
      A bare reading of para 44 shows that it is a method of calculation
indicated relating to the computation of the compensation. The compen-
sation 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 G
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, H
    1012                SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.

A 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
B   arriving at the cost of construction at the prevalent rate at the time offixing
    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
C 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 improve-
D            ments, 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
E            life of asset in order to match cost against earnings."

            Parks in Principles $ Practice of Valuation (5th Edn., at p. 323)
    states that as fur building, depreciation is the measurement of wearing out
    through c-0nsumption, or use, or effluxion of time. Paton has in his
F   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. Commission-
G ers of Income Tax, Karnataka, Bangalore, [1999] 7 sec 106.
           According to Websters' New Word Dictionary, "depreciation"
    means "a decrease in value of property through wear, deterioration or
    obsolescence; the allowance made for this in book-keeping, accounting
H   etc.".
                  U.0.1. v. SAVJIRAM [PASAYAT, J.]                      1013

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

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

        The other relevant question which needs to be determined is the
                                                                               B
  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 C
  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 D
  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 E
  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 F
  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 G
  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 H
    1014               SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.

A 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 acquisii:ion is of the land with infrastructure,
    there is no scope for making further deduction.

B          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
C   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
    Refer~nce Court should decide as to whether there was any removal of the
D   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
E   proper opportunities a fresh decision shall be taken by the Reference Court.
    We make it clear that we have not expr~ssed 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 expe-
    ditiously as possible, without delay. There shall be no order as to costs.
F
    A.K.T.                                              Appeal partly allowed.