Holding

Agricultural land without evidence of neighbourhood development cannot be deemed to have potential building value, and pre‑notification sale deeds cannot solely determine market value; thus compensation must be based on actual agricultural value without development deductions.

Summary

The Supreme Court examined an appeal concerning the acquisition of 89 acres of agricultural land in Siddanti village, Andhra Pradesh, under Section 4(1) of the Land Acquisition Act, 1894. The Land Acquisition Officer and lower courts had progressively increased compensation, with the High Court fixing a market value of Rs. 14 per square yard (Rs. 67,800 per acre) after deducting development charges, relying on a pre‑notification sale deed and a finding of "potential value" for building. The Court held that the land was agricultural at the date of notification, there was no development in the area or neighbourhood, and therefore it could not be treated as having potential building value; the pre‑notification sale deed could not be the sole basis for valuation. Consequently, deductions for development charges were inappropriate and the correct compensation was fixed at Rs. 40,000 per acre, with the matter of structures remanded. The State's appeal was allowed and the claimants' appeal dismissed.

Issues considered

Whether agricultural land at the date of notification can be treated as having potential building value for compensation purposes
Whether a sale deed executed before the acquisition notification can be the sole basis for determining market value
Whether deductions for development charges are applicable in the absence of evidence of development in the neighbourhood
Appropriate quantum of compensation for agricultural land under the Land Acquisition Act

Legislation cited

Land Acquisition Act, 1894s. 23, s. 4(1)

Subjects

Land acquisitionCompensationMarket valueAgricultural landDevelopment chargesSection 4(1)Potential valuePre‑notification sale deed

Judgment

\
LAND ACQUISITION OFFICER, HYDERABAD ETC. A
v.
t MALE PULLAMMA AND ORS. ETC.

MARCH 21, 1996
r
(K. RAMASWAMY AND G.T. NANAVATI, JJ.] B

Land Acquisition Act, 1894 : Section 4(1) and 23.

Land Acquisition-Determination of compensation-Agricultural
lands-f'oultry fam1s set up in part of land!;-Acquisition of-Finding of Land
Acquisition Officer and Reference Court that there was no development in
c
the area or in the neighbourhood on the date of Notification--High Court
awarding compensation after making deduction towards developmental char-
ges-Held High Court was wholly wrong in .detern1ining the market value
treating the acquired lands as possessing potential value--Question of deduc-
lion would arise only when the lands are found to have potential value and D
there is evidence of development in the neighbourhood.

Land Acquisition-Compensation-Sale deed executed just before the
.) notification was published under Section 4(1)--Held it coul<J not fonn the
sole basis for dete1111ination of compensation.
E
P. Ram Reddy & Ors. v. Land Acquisition Officer, Uroan Development
Authority, Hyderabad & Ors., [1995] 2 SCC 305, held Inapplicable.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5250 of
1996 Etc. F
+
From the Judgment and Order.dated 8.7.93 of the Andhra Pradesh
High Court in AS. No. 1176 of1991.

G. Prabhakar for the Appellants.
G
Venugopal Reddy, J.B. Dadachanji, M. Purshottarn· and A.Z.S. Pas-
rich for the Respondents.

The following Order of the Court was delivered :

Delay condoned. H
763
764 SUPREME COURT REPORTS [1996) 3 S.C.R.

A Leave granted.

Notification under Section 4(1) of the Land Acquisition Act, 1894
(for short, the 'Act') acquiring 89 acres, 37 gunthas of land situated in
Siddanti village of Shamshabad in Ranga Reddy District of Andhra
Pradesh was published on 16th October, 1982. The Land Acquisition
B
Officer in his award dated May 13, 1987 determined compensation @ Rs.
20,000 per acre. In addition, he also awarded Rs. 63,616 towards the value
of the structures constructed on the land in which poultry farms were set
up. On reference, the Subordinate Judge, Ranga Reddy District by his
award and decree dated February 20, 1991 enhanced the compensation to
C Rs. 35,000 per acre. In addition, he also awarded Rs. 50,000 more then the
amount awarded by the Land Acquisition Officer towards the value of the
structures. On appeal, the Division Bench of the High Court in A.S. Nos.
1176 and 2077 of 1991 by order dated July 8, 1993 enhanced the compen-
sation to Rs. 14 per square yard which worked out to Rs. 67,800 per acre
D and remitted the case with regard to determination of value of structures.
Thus this appeal by special leave.

Shri Venugopal Reddy, learned senior counsel for the respondents, { ,
contended that this in P. Ram Reddy & Ors. v. Land Acquisitio11 Officer,
E Urban Developme11t Authority, Hyderabad & Ors., (1995] 2 SCC 305, con-
sidering various factors in evaluating the market-value, stated seven cir-
cumstances to be taken into consideration in determining the
compensation. The High Court accepted the sale instance ExA-4 dated
September 8, 1982 which is earlier in point of time than the date of the
notification under which the land was sold at Rs. 30 per square yard. The
F High Court, therefore, after giving deductions at 53% towards the develop-
mental charges etc. determined the market price as Rs. 14 per sq. yd. The
fixation of the market-value, therefore, is not vitiated by any error of law.
He also contended that the High Court has recorded a finding that the
lands are possessed of potential value. On that basis, deduction towards
G further development was given and fJXation of the market-value cannot,
therefore, be said to be illegal.

We find no force in the contention. It is seen that the respondents
themselves had admitted during cross-examination that the lands were
H agricultural lands as on the date of the notification. They had set up a
\'
~
I

LAND ACQUISITION OFFICER v. M. PULLAMMA 765

poultry farm in it and to that small extent it was being used as such. Both A
the reference Court and the Land Acquisition Officer found,' as a fact, that
the lands are agricultural lands. The High Court has noted in the judgment
that some development had already taken place around the area and in the
neighbourhood there is a railway station, hospital and school etc. On that
basis the High Court has held that the lands had the potential value for B
building purposes. The finding is wholly unsustainable on the basis of the
evidence on record. It is seen that as on that date of the notification,
admittedly, the land were being used for agriculture purposes and a part
of the land was used for poultry purposes; Under these circumstances. It
( could not be said that the lands have the potentiality to be used as building
sites as on the date of the notification. Sale deed dated September 8, 1982 C
(Ex. A-4) was executed just before the notification was published under
Section 4 (1) in respect of an extent of 198 square yards of land which
worked out to Rs. 30 per square yard. By no stretch of imagination it could
form the sole basis for determination of the compensation. Ex. A-4 is,
therefore, rejected as no prudent purchaser would be willing to purchase D
vast extent of land on that basis. The feats of imagination of the Division
Bench of the High Court had run riot.

When Ex. A-4 is excluded from consideration, the only question that
arises is : whether the lands could be determined as possession building E
value in hypothetical layout, as contended by Shri Venugopal Reddy. In P.
Ram Reddy's case (supra) the lands were abutting the developed area in
which the building plots were sold for those·purposes, as was admitted by
the Land Acquisition Officer which was noted in the judgment. In view of
that development, this Court had laid down the criterion in determining F
+ the market-value. The ratio thereof has no application to the facts in this
case. The question of deduction would arise only when the lands are found
to have potential value and there is evidence of development in the
neighboruhood. Facts, as found by the reference Court and also Land
Acquisition Officer, clearly indicate that there was no development in the
area or in the neighbourhood as on the date of the notification. Under G
those circumstances, the High Court was wholly wrong in determining the
market-value treating the acquired lands as possessing potential value. The
next question is : what would be the just and adequate compensation which
the lands are capable to fetch ? In view of the findings of the reference
Court that the lands are agricultural lands, we think that just and proper H
766 SUPREME COURT REPORTS [1996] 3 S.C.R.

A compensation would be Rs. 40,000 per acre. With regard to the value of
the structures, the remand order is maintained. The court will determine
the same according to law.

The State appeals are accordingly allowed. The claimants' appeal is
dismissed. No costs.
B
T.N.A. Appeal dismissed.