The reversionary/deferred value of timber as also that of land “‘

covered by a tree will be negIig:'bIe if future fruit bearing life is

long enough.

In cases where lands involve.d iii the genuine instances of sale

also have similar trees; trees need not be valued separately.

4. FARM HOUSE, BUILDINGS

Buildings are of great importance to agricultural farm. These should at

loast be° adequate to house the livestock, machinery and equipment
and for storage of produce which the farm yields, seeds, fertilizers etc.
Labour quarters and a house/residence for a farm manager/farmer add
to the value. Similar is the case of fencing.

Buildings and fencing need not be valued separately if the lands

involved in the genuine instances of sale also comprise of similar
buildings, fencing etc. Otherwise buildings, fencing, gates etc. may be

’ valued separately on basis of ‘depreciated reproduction cost'.

Buildings for dairy, poultry, piggery etc. need not be valued separaleIy
since the activity/business of dairy, poultry etc. which are expected to
maintain regular accounts can be valued by income approach and
value of buildings will be reflected in such valuation.

5. EQUIPMENTS AND MACHINERY

Agriculture requires a number of equipments and machinery like

agricultural tools, plough or tractor, cultivators, sprayers etc. Most ot
the farms including lands involved in the instances of sale will be using
such equipments and machinery and hence these should not be
valued separately. Moreover such equipments and machinery are not
attached to the agricultural land, do not form its integral part and can
be detached from land and can be removed or sold separately.

1.3.3 Estimating Fair Market Value

The agricultural land can be valued by market approach by comparing it with

the lands in the vicinity involved in recent genuine instances considering all ’
the relevant factors of comparison. Such comparison can be made by
adopting any of the methods of comparison. It will however be advisable
to adopt ‘Total Weightage Score System‘ as far as possible for the reasons
that

16
 interest yielded is found out by market studies i.e. by analysis of recent
instances of sale of similar and comparable agricultural lands.in the vicinity.

In valuation by market approach fair market value of land to De valued is

estimated by comparing consideration price per unit area fetched by similar
and comparable lands in the vicinity sold recently. In this case also the
prices shown in the registered sale-deeds are generally much less than the
prices actually paid due to the hidden component of unaccounted or black
money involved in such transactions. The fair market values of agricultural
lands estimated on the basis of considerations shown in the registered sale
deeds are therefore generally much lower than the real market values
actually paid. This fact gave rise to the major complaint or grude against
acquisition of agricultural lands for public purposes under the provisions of
the Land Acquisition Act 1894.

1.4.2 Constitution of the Paranjpe Committee

In view of the above, the Government of Maharashtra appointed the Study

Group in June 1978 to suggest Equitable and Fair Method of determining
Market Value of Agricultural Lands under The Land Acquisition Act. Shri.
K.G. Paranjpe, the then Commissioner Bombay Division and the Secretary to
Government, Housing and Urban Development Department was chairman of
the study group and hence known as “The Paranjpe Commikee". The Study
Group included Shri. B.D. Joshi, Joint Secretary to Government Finance
Department, the Director of Economics and Statistics, Maharashtra State, the
Director of TOWn PIaMf\ing, Maharashtra State, Collector of Pune and
Satara Districts, Deputy Secretary to Government Revenue and Forest
Department and Under Secretary to Government, R and F.D. as Member
Secretary.

The Study Group in its meetings considered a few alternative methods for
estimating fair market values of agricultural lands and buildings, considered
the methods followed by State Governments of Andhra Pradesh, Punjab and
Karnataka and finally recommend to follow “The Income Capitalization
Method" for estimating fair and reasonable market value of agricultural lands
and buildings for purposes of Land Acquisition.

1.4.3 Recommendations of the Paranjpe Committee

In agricultural lands net annual income is related to annual yield of crops,

prices of the produce and the cost of cultivation. In absence of field wise
data of crops yield prices and cost of cultivation, the Paranjpe Committee
suggested a method with suitable standardization of various factors,

18
 (especially concerning annual yield of crops and gross income) which has
been simplified for easy application in practice. The method suggested by the
Committee is mainly applicable for non-irrigated lands where data and
evidence regarding gross annual income, annual cost of cultivation including
expenditure on inputs etc. is available or can be worked out, for the lands
under acquisition/valuation e.g. in case of lands under cash-crops, orchards
etc. net income can be capitalized at the appropriate rate of interest and the
standardized and simplified method for estimating net income as suggested
by the Committee, need not be followed.

1.4.4 Steps in tile b1ethoci: Faranjpe committee

The steps to be taken for estimating fair market value of agricultural lands
under acquisition as suggested by the Committee are —

1. To adopt appropriate crop pattern

2. To estimate average yield rates of production of crops/agricultural
produce.
3. To estimate gross income from ai d ce at the prevailing market
prices with adjustment of gross income in relation to productivity of
land under acquisition.
4. To estimate gross income from bye products and the total gross
annual income.
5. To estimate the annual cost of cultivation.
6. To estimate net annual income per hectare.
7. Capitalize net annual income at appropriate rate of interest.
8. Add depreciated reproduction cost of structures.

1.4.5 Cropping Pattern and Area : Village Level

The crop pattern at village level as per Village Form XIII is adopted for the
field under valuation. For this purpose each of the major crops taken”over
totaling to 70% to 60% area of the village are adopted, ignoring crops taken
over minor or smaller areas (for simplification), and adjusted to 100% area of
the village i.e. crops occupying 70% to 80% area are to be b!own up in terms
of acreage to get 100% coverage/area which will avoid exercise of computing
income front crops of minor occurrence. Further since the total percentage of
irrigation in the State is small and the Taluka / Tehsil level yield rates
available are essentially of unirrigated crops. It has been recommended that
while working out village level cropping pattern and averaging it over a period
of last seven years, crops such as banana, sugarcane which require
perennial
 irrigation should be excluded but proper allowance should be made for the
same while determining income from the field.

1.4.6 Yield Rate : Taluka Level

Due to absence of data regarding yield rates for crops at Village level,
Taluka/Tehsil level average yield rates per hectare for non-irrigated corps,
are considered for estimating gross produce. For calculating average yield
rates for each of the crops for last 10 years are to be considered. Such yield
rates er hectare at Taluka level for each of the crops taken in a
Taluka/Tehsil
are available 'z/i!h the= statistical branch of the siate Directorate of Agriculture.

For the purpose of estimating gross produce of each of the crops taken in a
field under acquisition/valuation as per crop pattern at village level adopted
as in Para 1.4.5 above, area under pot-kharaba/fallow, areas under nala
and/or road passing through the land etc. are excluded. The area of the land
kept fallow (for rotation etc.) is taken into consideration for estimating gross
produce. The area under seasonal irrigation i.e. irrigation, excluding the area
under sugarcane, is considered as.j.5 times the actual irrigated area and that
under perennia tion, including area under sugarcane irrigated by wells,
is considered as" twice the actual area so irrigated (crop pattern however
remains the same and only its area is increased so as to account for
increase in gross produce due to irrigation).

In the case of rJ‹1iihle cropping, the orea of the field/land under crops should
be incr=ased by the ratio of gross sown area in a village (which will be
more than the area of cultivated lands - physical area — due to same land
being sown for second/third crop etc.) to the net (physical) area of the village.
For example if 30% area in a village is sown for second crop etc. the ratio of
gross and net sown areas will be 130/100 i.e. 1.3 and the area of the
individual land under acquisition will be considered as 1.3 times its
cultivable area for estimating gross agricultural produce.

1.4.7 Prices and Gross Income

The gross income from the individual land under valuation/acquisition is

estimated by multiplying the produce of each of the crops (cropping pattern
and areas under various crops as per average cropping pattern at the village
level multiplied by the average yield rate for the concerned crop at Taluka /
Tehsil level) by the three years average prices during the peak marketing
season i.e. 3 months from harvesting of the concerned crop. For this
purpose the 3 years average month-end weighted average prices at the end
of each

20
 month of the peak marketing season are considered though the ideal method
of working out the weighted average price (weighted in proportion of
quantities of arrivals of each of the crops) would be to take daily prices and
weight them by the daily arrivals for the entire peak marketing period. Such
ideal method howe er would be too rigorous exercise to practice. The data ”
regarding such daily and month-end prices during the peak marketing season,.
and daily arrivals is available with the concerned Agricultural Produce Market}
Committee.

In the case of BP'y•rocduts such as ,^.!coho!, °!hano! =ts., the= income

from the by-poducts should be estimated by using the proportion of value
of by- product to value of the main produce, where availabe. Where such
proportion is not available, the income from by-products (if any), it should
be taken as 12%, when the total Gross Income from both, the main
produce and the by-
( 100 12)
product will be Gross income from main produce x 1.12 .
o

1.4.8 Cost of Cultivation : Outgoings

The Agricultural Taxation Committee appointed by the Government of India

while recommending the imposition of AgriCultural Holding Tax based on
estimates of net income from holdings, suggested 60% and 40% of gross ’‘
income as outgoings for irrigated and non-irrigated holdings respectively. In
Maharashtra the Mahatma Phule Krish Vidyapeeth has undertaken the
Cost of Cultivation Studies under the comprehensive scheme of
Government of India and had completed, by 1978-79, such studies for jawar
and su9arcane.

The annual cost of cultivation includes —

1. Labour Hired labour wages.

2. Inputs Cost of seeds, fertilizers, insecticides and
pesticides.
3. Taxes
land taxes/assessment, irri9ation cess, Electricity
charges and miscellaneous charges etc.
4. Interest on borrowed capital.

The Paranjpe Committee worked out the cost of cultivation for different crops
and ob3erved that it varies from 20% to 66% of gross income from total
production. It has been recommended that crops for which the data regarding
cost of cultivation is not av'aiIable the cost of cultivation may be taken at 50%
of gross income.
21
 It may be noied that the ‘Committee’ has not included in the cost of
cultivation the cost of family labour, bullocks, interest on working and fixed
capital not actually borrowed, depreciation since these are not actually paid
out costs because the term of reference of the Committee were related only
to payment of compensation for agricultural lands under the Land Acquisition
Act. In valuation for other purposes costs on these items may have.to be
deducted from gross income in which case total outgoings may vary from
50% to 65% of the gross income.

t4.9

The net annual income from agricultural lands, will be gross annual income
less annual outgoings, as in the case of other properties. “
<?. ,.'” ’ ”
Up to this point, it is important to note that the net incomn worked out or
estimated as above, the Average net income from the average field with
average assessment at Taluka / Tehsil level since the gross income is
estimated on the basis of average yield of the crops at Taluka / Tehsil level,
for land of Average Assessment at Taluka level.

1.4.10 Net Income From the Land

The net annual income estimated as above is the average level net income
from a land with average assessment at Taluka / Tahsil level. It is well known
fact that yields from a particular land varies with its fertiI'*y generally indicated
by its agricultural assessment. Yield also varies with improved. agricultural
practices increase of inputs, entrepreneurship of the owner etc. which are
personal factors attached to person and not attached to land and hence are
not considered.

The average level net income from the land with average assessment and
then to adjust this inccme for difference in the soil classification (indicated by
assessment) of the particular land under valuation as compared with the
average soil classification i.e. average assessment. The Committee, after
taking into consideration various factors in /olved in yield from land such as
soil classification, growth and health of crops according to depth in the soil
reached by routs etc. has recommencled a foimu!a for estimating net income
from a particular field on the basis of average net income from land with
average assessment viz.

V = Vo • P (A — Aa)
Ao

22
 Where,

V = Net income per hectare of the field under valuation t.

Vo - The Average net Income per hectare of the taluka / tehsil ’

A = Rate of assessment of the field under valuation

Ao = Average rate of assessment in Taluka / Tehsil

P = The weight (less than 1) to be attached to the difference

of the roto Gf assessi-rient (i.e. A — Ao) in deciding the
difference in income in short, P denotes relationship
between yield and fertility.

The factor 'P' in the formula is significantly important. The Statistics

Department of the Directorate of Agriculture, Maharashtra State selected one
district for each of the crops and analyzed the data in respect of about 100 to
150 crop-cuts for each crop. The coefficients of correlation of crop yields and
assessment of the fields worked out between 0.12 for Kharif Jawar, 0.22 for
Paddy and 0.27 for Groundnut. Further for each Tahsil the value of 'P' was
calculated and the weighted average value of 'P' for all Tahsils wcrked out to
0.15. The "Committee/Study Group therefore recommended to adopt value of
P as 0.2 (P = 0.2) in the above formula.

1.4.11 The Rate of Interest and Y.P.

The study Group / Paranjpe Committee observed that (in 1978-79) 5? %
Central Government Securities repayable in the year 2000 should effective
yield of 6.45%. The elective rate of State Government borrowings was
6.75% (in 1978-79). The Committee therefore recommended that the net
income from common crops such as cereals, pulses etc. should be capitalized
at about 6.75% in perpetuity i.e. at Y.P. of 14.8, say 15.

The Committee has also observed that for cash-crops like sugarcane, fruit
orchards, vegetables which involve management problems and risks, will
have to be capitalizéd at higher rates of interest and at lower Y.P. However
such crops have been excluded from the cropping pattern and since the
recommendations being mainly in respect of un-irrigated crops/fields, the
Committee has not made any recommendations in this respect.

23
 It may be noted here that the market studies carried out by the students of .
Master of Valuation (R.E.). Sardar Patel University, Vallabh Vidyanagar,
Gujarat dui ing 1998-2003 have revealed that the rate of interest yielded by
shops dealing with daily necessities and banks varies from 6% to 7%. The
rate of interest recommended by the Paranjpe Committee tallies well with the
same.

1.4.12 Structures

The Committee has recommended to add to the land value the depreciated
reproduction cost of the structures (with reproduction cost as new on the
date of valuation). The Committee has also recommended to estimate
depreciation by Y.P. method i.e.

Y.P./ull life Y.P. future life pp

% Depreciation = Y.P. full life

1.4.13 The above paragraphs give only a short summary of the recommendations of
the Paranjpe Committee. The students desirous to know further details may
refer to and study the “Report of The Study Group Appointed by Government
(of Maharashtra) To Suggest Equitable and Fair Method of Determining
Market Value of Agricultural Lands Under the Land Acquisition Act" March
†979 printed at Government Central Press, Bombay.

1.5 VALUATION OF MARKET GARDENS

1.5.1 The 9enuine instances of sale of similar market lands in the vicinity are too
rare to estimate fair market value of market gardens by market approach i.e.
by comparison with similar lands in the vicinity uoId recently.

1.5.2 Marl‹et gardens growing vegetables etc. require good bagayat land with rich,
light loamy soil and ample water supply i.e. assured irrigation. Mere
capability
, of being used as bagayat land growing 'vegetables is not enough for land
being used as Market Garden. The demand or market for the produce i.e.
vegetables etc. which is equally important has to be ascertained and proved.

1.5.3 The gross income from sale of the produce i.e. vegetables depends on the
quantity of vegetables available for sale and the price it fetches in the market.
The quantity of vegetables available for sale will be total quantity produced
' ' less wastage due to perishable nature of vegetables which also changes with
the type and variety of vegetable. Tthe price in the market is not a fixed one
.! but changes substantially depending on the position of supply of and demand