Non-agricultural potentiality governs land acquisition compensation; mechanical distance-based reductions cannot override comparable market value and surrounding advantages.

Compensation for acquired land must be fixed by assessing market value on the date of notification with reference to the land's existing advantages, geographical situation, non-agricultural potentiality, and comparable nearby sales. A mechanical distance-based reduction from the highway was improper because it ignored the land's developed surroundings, including access to highways, railway connectivity, industrial estates, and adjoining developed areas. Development deductions may be made only on a principled basis, not by formula. The Reference Court's award of Rs. 25 per square meter was therefore restored, and the higher compensation with consequential statutory benefits and interest was upheld.

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Issues: Whether the compensation for the acquired land was to be fixed by treating the land as having non-agricultural potentiality and by restoring the Reference Court's award of Rs. 25 per square meter, rather than by mechanically applying the distance-based reduction adopted by the High Court.

Analysis: The land was acquired for the New Bombay Project and the determination of compensation had to be made on the basis of the land's market value on the date of notification, taking into account its geographical situation, existing use, already available advantages, and the market value of comparable nearby lands. The Reference Court had found that the land was close to highways, railway connectivity, industrial estates, and developed areas, and therefore possessed substantial non-agricultural potentiality. The High Court reduced compensation mainly by applying a distance criterion from the highway, without properly addressing these features or the material relied upon by the Reference Court. The correct approach in acquisition matters is to assess potentiality and comparability, and to apply development deductions only in a principled manner, not mechanically.

Conclusion: The compensation awarded by the Reference Court at Rs. 25 per square meter was restored and the High Court's reduction was set aside.

Final Conclusion: The landowners succeeded in obtaining restoration of the higher compensation fixed by the Reference Court, together with the consequential statutory benefits and interest.

Ratio Decidendi: In determining compensation for acquired land, the Court must assess market value on the basis of the land's existing advantages and potentiality, and cannot reduce compensation by a mechanical distance-based formula that ignores the land's developed surroundings and comparable nearby awards.

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