Theory of deduction and principles like belting are not discarded under the 2013 Act; they operate through the discretionary adjustment mechanism in Explanation 4 and the comparative/exemplar framework in S. 26(1)(b). However, where compensation is calculated solely by applying S. 26(1)(a) read with appropriate guidelines/circle rates, and there is no formation of opinion under Explanation 4, no separate “theory of deduction” can be super-imposed to reduce the amount. On the facts, Clause (b) was inapplicable as “there are no exemplars in the vicinity” for average price; Clause (c) was inapplicable as the acquisition was not for private company/PPP. Thus, only Clause (a) applied, and the circle rate under the Collector’s Guidelines (2014–2015) formed under the Stamp Act was rightly taken as the market value. Neither the Competent Authority nor the Commissioner formed any opinion under Explanation 4 that such rate was not indicative of actual prevailing market value. Therefore, “no reduction in the amount can be granted by applying the theory of deduction.”

(A) LAND ACQUISITION – RFCTLARR ACT, 2013 – THEORY OF DEDUCTION – CIRCLE RATES UNDER STAMP ACT

Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, Ss. 23, 26, 27, 28;
Land Acquisition Act, 1894, Ss. 11, 15, 23, 24, 25;
Indian Stamp Act, 1899, S. 47A & circle rates;
Madhya Pradesh Preparation and Revision of Market Value Guideline Rules, 2018 (earlier 2000 Rules).

• Issue in batch: “applicability of the ‘theory of deduction’ for determining the compensation payable” under the 2013 Act where market value is determined as per S. 26(1).

• Under the 1894 Act, courts had evolved and applied the “theory of deduction” mainly because:
  (i) “consideration of the potential value of the land can result in arriving at an enhanced or increased value, especially for undeveloped lands”; and
  (ii) “in acquisitions of large underdeveloped lands, a significant portion of the land would have to be utilised for making minimum amenities like roads, drains, sewers, water and electrical lines available”, involving substantial “development charges”.

• Decisions such as Smt. Tribeni Devi v. Collector of Ranchi, (1972) 1 SCC 480, and Jag Mahender v. State of Haryana (2017 SCC OnLine SC 2160) applied deduction (up to one-third, and in some cases up to 50%) toward cost of development; Lal Chand v. Union of India, (2009) 15 SCC 769, explained that “fair deduction” has two components – (i) area to be utilised for development, and (ii) cost of such development – and that quantum of deduction is fact- and situation-specific.

• Under the 2013 Act, S. 26(1) requires the Collector to “adopt the following criteria in assessing and determining the market value of the land”, namely:
  (a) market value specified in the Stamp Act for registration of sale deeds/agreements in the area; or
  (b) the average sale price for similar type of land in nearest village/vicinity (with Explanations 1–4); or
  (c) consented amount of compensation under S. 2(2) in case of private company / PPP acquisitions;
  “whichever is higher” – values are not to be averaged; “the highest of the values as determined by Clauses (a), (b) and (c), is to be treated as the market value under Section 26(1)”.

• Explanations 1–3 to S. 26(1) regulate how average sale price is to be computed and exclude:
  – transactions older than three years;
  – lower half of sale deeds; and
  – “any price paid as compensation for land acquired under the provisions of this Act on an earlier occasion in the district”.

• Explanation 4 is pivotal. It refers, first, to “determining the market value under this section” and, second, specifically to the average sale price under Explanations 1 & 2. Where in the Collector’s opinion the price “is not indicative of actual prevailing market value”, it “may be discounted for the purposes of calculating market value.” The Court holds that the word “and” in Explanation 4 must be read as “or”, so that the Collector’s discretion applies disjunctively to:
  – the “higher value determined as per Clauses (a), (b) and (c)” under S. 26(1); or
  – the average sale price under Explanations 1 & 2.

• Formation of the Collector’s opinion under Explanation 4 and any “discounting or enhancing of the value must be supported by recorded reasons”. At that stage, “the theory of deduction, the principle of belting and other material factors will also be taken into account”, because accurate valuation “is not an exact science” and Clauses (a) and (c) do not themselves expressly incorporate such adjustments.

• Held: Theory of deduction and principles like belting are not discarded under the 2013 Act; they operate through the discretionary adjustment mechanism in Explanation 4 and the comparative/exemplar framework in S. 26(1)(b). However, where compensation is calculated solely by applying S. 26(1)(a) read with appropriate guidelines/circle rates, and there is no formation of opinion under Explanation 4, no separate “theory of deduction” can be super-imposed to reduce the amount.

• On the facts, Clause (b) was inapplicable as “there are no exemplars in the vicinity” for average price; Clause (c) was inapplicable as the acquisition was not for private company/PPP. Thus, only Clause (a) applied, and the circle rate under the Collector’s Guidelines (2014–2015) formed under the Stamp Act was rightly taken as the market value. Neither the Competent Authority nor the Commissioner formed any opinion under Explanation 4 that such rate was not indicative of actual prevailing market value.
  Therefore, “no reduction in the amount can be granted by applying the theory of deduction.”

(B) STAMP ACT – CIRCLE RATES / GUIDELINE VALUES – NATURE, WEIGHT AND ROLE UNDER 2013 ACT

• Earlier case-law under the 1894 Act (e.g. Jawajee Nagnatham v. Revenue Divisional Officer, (1994) 4 SCC 595; Krishi Utpadan Mandi Samiti v. Bipin Kumar, (2004) 2 SCC 283) held that basic valuation registers/circle rates maintained under S. 47A of the Stamp Act were meant to check under-valuation for stamp duty and could not, by themselves, fix market value under S. 23 of the 1894 Act. Lal Chand treated them as only “a prima facie basis” for market value, subject to proof of actual market price; R. Sai Bharathi v. J. Jayalalitha, (2004) 2 SCC 9, described guideline rates as merely “prima facie rates prevailing in the area”.

• The present judgment distinguishes the statutory scheme of the 2013 Act: S. 26(1)(a) now statutorily adopts the market value specified under the Stamp Act as one of the mandatory “criteria” for determination of market value. When such circle rate is the highest of the three criteria, it must be adopted as market value, subject only to adjustment under Explanation 4 and further working under Ss. 27 and 28.

• The Court emphasises that scientifically determined circle rates, fixed under detailed rules by expert committees (here, the Madhya Pradesh 2000/2018 Rules), can amount to “expert evidence”. Rule 6 of the 2018 Rules requires consideration of extensive factors: classification of land, yield, proximity to roads and markets, use as residential/commercial/industrial, development activity, etc.

• Circle rates have wide systemic implications: they affect stamp duty (State revenue) and also interact with provisions like Ss. 43CA, 45, 49, 50C, 55 of the Income-tax Act, 1961. Safeguards like “safe harbour” limits had to be introduced in tax law when circle rates in certain localities exceeded prevailing market values.

• Held: Circle rates should:
  – be “fixed at the floor or baseline price”, not over-valued;
  – be determined by expert committees (with specialists and government officers) using scientific, transparent methods;
  – be regularly updated and the underlying data “made public”.

• Development authorities and State instrumentalities which acquire land “must adhere to the same” circle rates on which they collect stamp duty. The Court remarks that it does not appreciate the appellant-corporation “complaining about the circle rate fixed by the State Government”. If circle rates are inflated or not reflective of true market value, “it is incumbent upon the State Government to take corrective steps”; the State or its development corporation “cannot complain that they have been compelled to acquire land at the circle rate fixed by the State.”

(C) RFCTLARR ACT, 2013 – SCHEME OF Ss. 23, 26, 27, 28 – ROLE OF COLLECTOR’S DISCRETION

• Section 23 (2013 Act): After enquiry into objections, the Collector must make an award stating:
  (a) true area;
  (b) “the compensation as determined under Section 27 along with Rehabilitation and Resettlement award as determined under Section 31 and which in his opinion should be allowed for the land”; and
  (c) apportionment.

• Section 26 (2013 Act): Provides the mandatory criteria for assessing market value and the computation mechanism (Clauses (a)–(c) plus Explanations 1–4; multiplication factor under sub-s. (2); and fallback mechanism with floor price under sub-s. (3)).

• Section 27: Once market value is determined under S. 26, “the Collector having determined the market value of the land to be acquired shall calculate the total amount of compensation to be paid to the land owner… by including all assets attached to the land.”

• Section 28: Sets out parameters for determining the award amount; first and foremost:
  “firstly, the market value as determined under Section 26 and the award amount in accordance with the First and Second Schedules”; followed by various heads of damage (crops/trees, severance, injurious affection, change of residence, diminution of profits) and a seventh head – “any other ground which may be in the interest of equity, justice and beneficial to the affected families”. The Court clarifies that this seventh ground “will not apply to reduce the market value of land determined under Section 26, but the Collector can apply it to enhance the market value in the interest of equity and justice if it is beneficial to the affected families.”

• Reading Ss. 23, 26, 27 and 28 together, the Court holds that final determination of compensation vests in the Collector, but:
  – computation of market value must begin with the statutory criteria in S. 26(1);
  – Explanation 4 is the vehicle for upward or downward calibration (using theory of deduction, belting, special features, etc.), with reasons recorded;
  – S. 28’s seventh ground is a one-way valve – it allows enhancement in equity, but not reduction of the S. 26 market value.

(D) INTERPRETATION – EXPLANATION AS INTEGRAL PART OF SECTION – READING “AND” AS “OR”

• Reiterating Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661 and Coromandel Fertilizers Ltd. v. Union of India, 1984 Supp SCC 457, the Court states that an Explanation appending a section “gets incorporated into it, becomes an integral part of it, and has no independent existence apart from it… there is, in the eye of law, only one enactment.”

• On Explanation 4 to S. 26(1), the Court, referring also to Maharishi Mahesh Yogi Vedic Vishwavidyalaya v. State of M.P., (2013) 15 SCC 677, holds that the word “and” should be read as “or” to effectuate legislative intent, so that the Collector’s discretion extends to the entirety of “determining the market value under this section” and is not confined only to the average sale price mechanism.

(E) FACTS AND RESULT

• Land between 3.4 km and 22.8 km of Jabalpur–Mandla–Chilpi section (NH-12A) in District Jabalpur was acquired under the National Highways Act, but in view of S. 105(3) of the 2013 Act, compensation, rehabilitation and infrastructural amenities were to be determined by reference to the First, Second and Third Schedules of the 2013 Act.

• Competent Authority initially valued the non-converted agricultural land (over 1000 sq m) by valuing first 1000 sq m at residential-plot rate (Form-1) and balance area at agricultural rate (Form-3) for village Katiyaghat (Rs 1,50,00,000 per hectare), added assets and solatium and fixed compensation for Respondent Vincent Daniel’s land at Rs 2,05,42,164/-.

• On appeal, the Commissioner held that the Collector’s Guidelines were binding, but misapplied by Competent Authority; he directed application of Rs 12,000 per sq. m. for first 1000 sq. m. (residential rate “inside the Katiyaghat road”) plus Rs 1,50,00,000 per hectare for balance land, and after adding 100% solatium and interest, found additional Rs 2,21,11,562/- payable.

• District Judge dismissed S. 34 Arbitration Act objections; High Court dismissed S. 37 appeals, but reasoned (incorrectly, per Supreme Court) that theory of deduction under the 1894 Act had no precedential value under the 2013 Act and that once Stamp Act market value is highest, it is binding without scope for deduction.

• Held (Supreme Court):
  – Disagreed with High Court’s reasoning that “the judgments applying the theory of deduction under the Acquisition Act, 1894 do not have any precedential value” under the 2013 Act; clarified instead how theory of deduction and belting fit into S. 26 (via Explanation 4 and Clause (b)).
  – Nevertheless, on the facts, upheld the Commissioner’s award based on the circle rate under Collector’s Guidelines (2014–2015) as the highest value under S. 26(1)(a), with no warrant for any deduction in absence of a formed, recorded opinion under Explanation 4.
  – Appeals by Madhya Pradesh Road Development Corporation dismissed, “There will be no order as to costs.”