‘The reversionaryldeferred value of timber as also that of land covered by a tree will be negligible if future fruit bearing life is tong enough. In cases where lands involved in the genuine instances of sale also have similar trees; trees need not be valued separately. FARM HOUSE, BUILDINGS Buildings are of great importance to agricultural farm. These should at least be edequate to house the livestock, machinery and equipment and for storage of produce which the farm yields, seeds, fertlizers etc. Labour quarters and a house/residence for a farm managerifarmer ad¢ 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 ete. may be valued separately on basis of ‘depreciated reproduction cost’. Buildings for dairy, poultry, piggery etc. need not be valued soparetely 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. EQUIPMENTS AND MACHINERY Agriculture requires a number of equipments and machinery like agricultural tools, plough or tractor, cultivators, sprayers etc. Most of 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 bbe detached from land and can be removed or sold separately. 4.3.3: 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 forthe reasons that 1614 144 firstly it will be more objective and secondly it will help in forming and_ maintaining data bank which will be helpful in future valuations. in estimating fair market value of land under valuation it is essential to take into consideration (i) price per unit area for lands sold (il) area of land to be valued and areas of lands sold (i) date of sale transactions and date of valuation and (lv) total weightage scores of lands sold and that of land under valuation. A plan (sales plan) showing the land under valuation‘and the lands involved in genuine instances of sale and the information in respect of the above four aspecis/factors will help in estimating fair market value of the land under valuation as on the date of valuation considering the purpose of valuation. ‘An agricultural estate is more often sold in the market in parts than as one estate as a whole. Its value therefore depends on the nature and value of the individual properties of which it is composed of rather than its worth as a whole. Even in valuing the smaller estates for sale as a whole its components should be treated. separately, particularly because some assets are better secured than others and will fetch higher values. The demand for agricultural land property is unlikely to fall below supply in any predictable future. Apart from the fact that agricultural land is an indestructible investment even in the times of continual inflation, purchasers aare_attracted.by.the physical value (agriculture being primary and basic sector of economic activity) and by the concessions and advantages it enjoys in connestion with Income Tax. VALUATION BY INCOME APPROACH General |n valuation of properties by Income approach the net annual income (Gross annual income less annual outgoings) yielded by a property and the security Of capital and of income on which depends the remunerative rate of interest for capitalization (and therefore Y.P:) are the two crucial factors. Any farmer in India hardly maintains regular accounts showing gross income (receipts) and expenditure (outgoings) and it is not possible to ascertain net annual income yielded either by the property under valuation or by similar lands in the vicinity sold recently. Further since net annual income yielded by similar and comparable properties sold cannot be reasonably ascertained, sales of similar agricultural lands cannot be analyzed (market study) and the rates of interest yielded by such instances of sale cannot be found out. It is therefore very rare to estimate fair market value of agricultural lands unless the net annual Income yielded by such lands is reasonably ascertained and the rate of 7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 be valued is estimated by comparing consideration price per unit area fetched by similar and comparable lands in the vicinity sold recenly. In this case also the prices Shown in the registered sole-deeds are generally much less than the prices cetvally 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 270 therefore generally much lower than the real market values actually paid ‘his fact gave ise to the major complaint or grude against acquisiton of agricultural lands for public purposes under the provisions of the Land Acquisition Act 1894. 14.2 Constitution of the Paranjpe Committee In view of the above, the Government of Maharashtra appointed the Study Group in Juna 1978 to suggest Equitable and Fair Method of determining Market Value of Agricultural Lands under The Land Acquisition Act. Shr, Ke 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 Paranjoa Committee’, Tw Stuay Group included Shri. B.D. Joshi, Joint Secretary to Goverment Finanos Devartment, the Director of Economics and Statistics, Maharashtra Stato, the Director of Town Planning, Maharashtra State, Collector of Pune and Setara Disiits, 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 altemative methods for estimating fair market values of agricuitural lands end buildings, considered the methods followed by State Governments of Andhra Pradesh, Punjab and Karnataka and finaly recommend to follow "The Income Capitaizaton Method" for estimating fair and reasonable market value of agricultural ands and bulidings for purposes of Land Acquisition. 1.4.3 Recommendations of the Paranjpe Committee In agricultural lands net ennual income is related to annual yield of crops, Briess of the produce and the cost of culivation. In absence of field wise det, of ‘reps yield prices and cost of cullvation, the Pacanjpe Committee Suggested a method with suitable- standardization of various. tastors 1844a 145 (especially concerning annual yield of crops and gross income) which has been simplified for easy application in practice. The method suggested by the Committe 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. Sieps in the Method: Paranjpe Committee The steps to be taken for estimating fair market value of agricultural lands under acquisition as suggested by the Committee are ~ 1. Toadopt appropriate crop pattern 2. To estimate average yield rates of production of cropsfagricultural produce, 3. Toestimate gross income from main produce at the prevailing market, prices with adjustment of gross income in relation to produetivity of land under acquisition. 4. To estimate gross income from bye products and the total gross annual income. To estimate the annual cost of cultivation. To estimate net annual income per hectare, Capitalize net annual income at appropriate rate of interest. ‘Add depreciated reproduction cost of structures, Cropping Pattern and Area : Village Level The crop pattern at village level as per Village Form XIll is adopted for the field under valuation. For this purpose each of the major crogg takeit over totaling to 70% to 80% 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 blown up in terms of acreage to get 100% coverage/area which will avoid exercise of computing income from 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 essefilially of unirtigated 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 419147 Eigaton should be excluded but proper allowance should be made for the same while determining income from the field Yield Rate : Taluka Level Due to absence of data regarding yield rates for crops at Vilage level, Taluka/Tehsil level average yield rates: per hectare for non-irrigated corps, are considered for estimating gross produce. For calculating average yield rates {or each of the crops for last 10 years are to be considered. Such yield rates (Ber hectare at Taluka level) for each of the crops taken in a Taluka/Tehsil are available with the statistical branch of the state Directorate of Agriculture. For the purpose of estimating gross produce of each of the crops taken ina field under acquisition/valuation as per crop patiem at vilage level adopted as in Para 7.4.5 above, area under pot-kharaba/faliow, areas under nala andlor ‘oad 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 uncer seasonal irrigation i.e. irigation, excluding the area under sugarcane, is considéred ag 1.5 times the actual irrigated area and that under perennial igation, including area under sugarcane inigated by wells, is considered as"twice the actual area so irrigated (crop pattem however remains the same and only its aroa is increased so as to accotin for incroese nv grO8S roduce due to irrigation). In the case of double cropping, the erea ofthe fieldNand under crops should be Increased by the ratio of gross sown area ina village (which will be more {han the area of cultivated lands - physical area ~ due to same land being sown for secondithird crop etc: to the net (physical) area of the village. For example if 30% area in a village is sown for second crop ete. the ratio of gross and net sown areas will be 130/100 ie. 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. Prices and Gross Income The gfoss income from the individual land under valuation/acquisition is estimated by multiplying the produes of each of the crops (cropping pattern and areas under various crops as per average cropping pattem at the vilage level multiplied by the average yield rate for the concemed crop at Taluka / ‘ohsi 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 ‘he 3 yoars average month-end weighted average prices at the end of each 20r i 148 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 1G6aF method however 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 By-Products such as Alcohol, ethanol etc., the income from the by-products should be estimated by using the proportion of value of by- product to value of the main produce, where available. Where such proportion iS not available, the income from by-products (if any), it should be taken as 12%, when the tolal Gross Income from both, the main produce and the by- 1o0+12 product will be Gross income from main produce x 1.12. (Tr 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 \come 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 sugarcane. ‘The annual cost of cultivation includes ~ 4. Labour “Hired labour wages. 2 Inputs : Gost of seeds, ferflizers, insecticides and pesticides. 3. Taxes : land taxes/assessment, irrigation 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 observed 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 available the cost of cultivation may be taken at 50% of gross income. 2449 ft may be noted that the ‘Cornmittee’ 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 trom.50% to 65% of the gross income. Net Income : Average ‘The net annual income from agricultural lands, will be gross annual income fess annual outgoings, as in the case of other properties. Up to this point, it is important to note that the net income 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 ‘astimated on the basis of average yield of the crops at Taluka / Tehsil level, for land of Average Assessment at Taluka level. 4.4.10 Net Income From the Land The net annual income estimated as above is the average level net income {tom a land with average assessment at Taluka / Tahsil level. {tis well known fact that yields from a particular land varies with its fertiity generally indicated by its agricuitural assessment. Yield also varies with improved agricultural practices increase of inputs, entrepreneurship of the owner ete. 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 income for difference in the soil classification (Indicated by assessment) of the particular tand under valuation as compared with the average soil classification i.e. average assessment. The Committee, after taking into consideration various factors involved in yield from land such as. soil classification, growth and health of crops according to depth in the soil reached by roots etc. has recommended a formula for estimating net income from a particular field on the basis of average net income from land with average assessment viz. J ¥ 4-10)| ovis $0440 t vo +e [Bu 4o)| 22 || Net income per hectare of the field under valuation 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 rate of assessment (i.e. A - Ao) in deciding the difference in income in short, P_denotes relationship between yield and fertlty. ‘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 180 crop-cuts for each crop. The coefficients of correlation of crop yields and assessment of the flelds 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 worked 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. 1.4.41 The Rate of Interest and Y.P. The study Group / Paranjpe Committee observed that (in 1978-79) 514% Central Government Securities repayable in the year 2000 should effective yield of 6.45%, The effective 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 ie. 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 pattem and since the recommendations being mainly in respect of un-irrigated cropefields, 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 during 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 Peranjpe 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 ie. YP fulllife ~ ¥-P. fare life % = Depreciation YP. fulllife 100 1.4.13 The above paragraphs give only a short summary of the recommendations of 15 154 1.5.2 153 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 Feir Method of Determining Market Value of Agricultural Lands Under the Land Acquisition Act” March 1979 printed at Government Central Press, Bombay. VALUATION OF MARKET GARDENS. The genuine 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 sold recently. Market gardens growing vegetables etc. require good bagayat land with rich, light loamy soil and emple water supply Le. 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.. vegetables etc, which is equally important has to be ascertained and proved. 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 perishablo 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 fee : 24 a a