Methodically & Scientifically Fixed Circle Rates Can Contribute To Strengthening Economy & Boosting Tax Collections: Supreme Court

The Supreme Court has emphasised that methodically and scientifically fixed circle rates can contribute to strengthening the economy and boosting tax collections.

The Court emphasised thus in a batch of Civil Appeals filed by the Madhya Pradesh Road Development Corporation (MPRDC), relating to the applicability of the “theory of deduction” for determining the compensation payable under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act).

The two-Judge Bench comprising Chief Justice of India (CJI) Sanjiv Khanna and Justice Sanjay Kumar observed, “It would be advisable that the circle rates be fixed by expert committees, which not only have officers from the government but also other specialists who understand the market conditions. Methodically and scientifically fixed circle rates can contribute to strengthening the economy and boosting tax collections. While serving the interests of honest taxpayers, accurate circle rates would simultaneously deter non-compliant taxpayers by preventing under-valuation.”

The Bench said that the rational and fair circle rates reflect and are a prerequisite for good governance and given the financial implications of fixation of circle rates on each member of the society, the data and details for computation of circle rates should be made public.

“Regrettably, proper fixation of circle rates has not received adequate attention from public authorities”, it added.

AOR Harmeet Singh Ruprah represented the Appellant while Senior Advocate Santosh Paul represented the Respondents.

Brief Facts

By a Gazette Notification in 2014, the Central Government declared its intention of acquiring the stretch of land falling with 3.4 km to 22.8 km of the Jabalpur-Mandla-Chilpi section, in the District of Jabalpur, Madhya Pradesh State. The purpose of the acquisition was stated to be widening, four-laning, maintenance, management, and operation of National Highway No. 12-A and the notification was also published in two newspapers. In 2015, the land was declared to have been acquired. Thereafter, the Competent Authority and Land Acquisition Officer passed an award determining the compensation payable for the land acquired. By following a procedure, the total compensation payable for the acquisition of the land belonging to the Respondent was calculated to be Rs. 2,05,42,164/-.

Being dissatisfied, the Respondent i.e., the landowner appealed to the Commissioner against the Competent Authority’s decision. It was argued that the rate at which the compensation was awarded was significantly lower than the market rate. The Appellant i.e., MPRDC filed its reply raising several contentions. The Commissioner held that the Collector’s Guidelines were binding, however, the Competent Authority made an error in applying the same. The MPRDC preferred objections before the District Court saying that the compensation should not have been awarded by solely relying upon the Collector’s Guidelines, as the land was undeveloped. Its objections were dismissed by the District Judge and consequently, it preferred Appeals before the High Court but the same were also dismissed. Challenging this, the MPRDC was before the Apex Court.

Reasoning

The Supreme Court in view of the above facts, remarked, “In the last few decades, the Union of India and the State Governments have laid emphasis on enhancing the ease of living and doing business. Fixing fair and accurate circle rates has a direct impact on each citizen. An inflated rate results in an unfair financial burden on purchasers. Conversely, an undervalued rate leads to inadequate stamp duty collection, adversely affecting the State’s revenue. Circle rates which reflect the market price ensure proper revenue collection for the State by preventing under-valuation of properties.”

The Court noted that the Central Government had to amend the Income Tax Act, 1961 (ITA) when it was noticed that the circle rates at times in certain localities were higher than the prevailing market value.

“Circle rates often become a politically and economically contentious issue. This is reflected in the frequent litigations across various jurisdictions, which discuss the circle rates applicable to properties”, it further said.

The Court was of the view that circle rates, when determined while accounting for factors that cause variations in the market price of land, can facilitate predictability in transactions and curtail litigation and that the standardized circle rates should be fixed at the floor or baseline price, as it would be grossly unfair to ask the public to pay stamp duty on over-valued circle rates.

“The 2018 Rules framed by the State of Madhya Pradesh attempt to comprehensively address the variable factors that influence the price of land, and, therefore, lay the foundation for a more accurate valuation of land prices. In our opinion, other State Governments would also be well advised in formulating guidelines that can act as a ready reference for determining and revising circle rates regularly, in order for them to reflect market realities”, it also noted.

Coming to the facts of the case, the Court said that the Commissioner has applied the Collector’s Guidelines by using the rate provided for non-converted agricultural land and has further supplemented this amount by accounting for the assets attached to the land and adding the solatium payable.

“… we hold that the compensation has been calculated in accordance with the mandate of the Acquisition Act, 2013. Thus, no reduction in the amount can be granted by applying the theory of deduction. It has been left to the Collector’s discretion to make adjustments to the market value determined through Section 26(1), if deemed necessary in the opinion of the Collector. In the facts of the present case, there was no such formation of opinion by the Competent Authority or the Commissioner”, it held.

Furthermore, the Court emphasised that the concerned authorities should fix circle rates scientifically and in accordance with the law and it is their responsibility to ensure that circle rates are neither inflated nor disproportionately low.

“When the citizens are required to pay stamp duty on the notified circle rate, the public authorities, including state development corporations acquiring land from private individuals, must adhere to the same. We do not appreciate the appellant, Madhya Pradesh Road Development Corporation complaining about the circle rate fixed by the State Government. If the circle rate is inflated or does not reflect the true market value, it is incumbent upon the State Government to take corrective steps”, it also suggested.

The Court remarked that the State Government or the development corporation under the State Government cannot complain that they have been compelled to acquire land at the circle rate fixed by the State.

“Thus, while we disagree with the ratio and the reasoning of the High Court, albeit for the reasons and findings recorded above, we uphold the computation in the award passed by the Commissioner directing payment of compensation on the basis of the circle rate”, it concluded.

Accordingly, the Apex Court dismissed the Appeals.

Cause Title- Madhya Pradesh Road Development Corporation v. Vincent Daniel and Others (Neutral Citation: 2025 INSC 408)

Appearance:

Appellant: AOR Harmeet Singh Ruprah, Advocates Sharath Nambiar, Kanishk Sharma, and Paras Bajpai.

Respondents: Senior Advocate Santosh Paul, AORs Raghvendra Kumar, Randhir Kumar Ojha, Sriharsh Nahush Bundela, Akshat Shrivastava, Advocates Devvrat Singh, Anand Kumar Dubey, Sanjiv Kumar Chaturvedi, Akshay Kumar, Vedant Mishra, Aditi Rai, Pooja Shrivastava, Satvic Mathur, Palash Pareek, and Vinod Prasad.

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