Madras High Court
The Principal Commissioner Of Income ... vs M/S.British Agro Products (India) Pvt. ... on 9 May, 2025
Author: C.Saravanan
Bench: R.Suresh Kumar, C.Saravanan
T.C.A.Nos.499 and 500 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 09.09.2024
Pronounced on 09.05.2025
CORAM:
THE HONOURABLE MR.JUSTICE R.SURESH KUMAR
and
THE HONOURABLE MR.JUSTICE C.SARAVANAN
T.C.A.Nos.499 and 500 of 2023
and
C.M.P.No.22213 of 2023
The Principal Commissioner of Income Tax-1,
Chennai. ... Appellant in both T.C.As
Vs.
M/s.British Agro Products (India) Pvt. Ltd.,
No.9, State Bank Officers Colony
Shastri Nagar, Adyar
Chennai – 600 020
PAN: AAFCB-8238H ... Respondent in both T.C.As
Prayer in T.C.A.No.499 of 2023: Appeal under Section 260A of the Income Tax
Act, 1961, against the order of the Income Tax Appellate Tribunal, “C” Bench,
Chennai dated 05th of April 2023 in I.T.A.No.970/Chny/2022 for the
assessment year 2018-19.
Prayer in T.C.A.No.500 of 2023: Appeal under Section 260A of the Income Tax
Act, 1961, against the order of the Income Tax Appellate Tribunal, “C” Bench,
Chennai dated 05th of April 2023 in I.T.A.No.969/Chny/2022 for the
1/47
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T.C.A.Nos.499 and 500 of 2023
assessment year 2017-18.
For Appellant : Mr.T.Ravi Kumar
(In both T.C.As) Senior Standing Counsel
For Respondent : Mr.S.Saravana Kumaran
(In both T.C.As) for Mr.M.Velmurugan
COMMON JUDGMENT
(Judgment of the Court was delivered by C.SARAVANAN, J.)
By this common judgement, both these Tax Case Appeals are being
disposed of.
2. These Tax Case Appeals are directed against the Impugned Common
Order dated 05.04.2023 passed by the Income Tax Appellate Tribunal, 'C'
Bench, Chennai (hereinafter referred to as the 'Tribunal') in
I.T.A.No.969/Chny/2022 and I.T.A.No.970/Chny/2022 for the Assessment
Year 2017-2018 and the Assessment Year 2018-2019.
3. By the Impugned Common Order, the Tribunal dismissed the appeals
filed by the Appellant/Income Tax Department viz., the Deputy Commissioner
of Income Tax Department as against two Orders dated 12.09.2022 of the
Commissioner of Income Tax (Appeals), National Faceless Assessment Centre
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T.C.A.Nos.499 and 500 of 2023
(NFAC) (hereinafter referred to as the 'Appellate Commissioner') passed for the
Assessment Years 2017-2018 and Assessment Years 2018-2019.
4. Earlier, the Appellate Commissioner had accepted the contention of the
Respondent/Assessee that the income generated by the Respondent/Assessee
from cultivation of white 'Button Mushrooms' under controlled temprature was
an “Agricultural Income” within the meaning of Section 2(1A) of the Income
Tax Act, 1961 (hereinafter referred as the 'Act') and therefore, the
Respondent/Assessee was not liable to pay tax under the provisions of the Act
on the income from 'Buttom Mushrooms'.
5. At the time of admission of these Tax Case Appeals, the following
questions of law were framed as the Substantial Questions of Law by this Court
for being answered:-
1. Whether on the facts & in the circumstances of the case,
the Tribunal was justified in holding that the income
derived from cultivation and sale of “white button
mushroom” are “agricultural income” exempt from
Income tax especially when mushroom is neither a plant
nor a fruit nor a vegetable but a fungus (fruiting body of a
mycelium) in strict sense of a scientific classifications?
2. Is not the reasoning and finding of the Tribunal bad
especially when the process of growing mushrooms in
trays by utilizing the artificial climate conditioning for
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production and quality control would not fall within the
definition of “agricultural income” under Section 2(1A)
but it is closely associated with the process of production
and manufacturing?
6. In the Impugned Common Order, the Tribunal had predominantly
placed reliance on the decision of the Special Bench of the Tribunal in the case
of DCIT Vs. M/s.Inventaa Industries Private Limited, [2018] 65 ITR 625
(Hyd.). There, the Tribunal concluded that in the facts of the said case,
Mushroom was an agricultural product raised from land. It had therefore
observed that Mushroom, like any other vegetables and other crops or plants
which are grown on soil/land and are always attached to the soil until harvested
and that they draw their nourishment from the soil only and did not arise from
any secondary agricultural operation. The Tribunal in the above decision
referred to the following case laws:-
Case Laws:-
i. CIT Vs. Raja Benoy Kumar Sahas Roy, (1957) 32 ITR 466
ii. CIT Vs. K.E. Sundara Mudaliar, [1950] 18 ITR 259 (MAD)
iii. Pandai Pathan Vs. Ramasami Chetti, [1922] ILR 45 (MAD)
iv. Molar Mal Vs. Kay Iron Works (P) Ltd., [2000 (4) SCC 285]
v. Commissioner of Income Tax Vs. Soundarya Nursery,
[2000] 241 ITR 530.
7. The Tribunal in the case of DCIT Vs. M/s.Inventaa Industries
Private Limited, [2018] 65 ITR 625 (Hyd.), had given the following findings:-
Findings:-
12.10. The Ld. Standing Counsel referred to the decision of the
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Hon'ble Madras High Court in the case of Krishna Murthy
(supra) wherein at para 14, Mullah's commentary on Transfer of
Property Act has been extracted along with definition of
immovable property under “General Clauses Act”, and argued
that land is immovable property and once soil is detached from
land, it ceases to be land. Definitions as relied upon by the
parties are extracted for ready reference:
“Land”
In the Black's Law Dictionary, free online legal
dictionary, 2nd Edition, “land” is defnined as:
In the most general sense, “comprehends any ground, soil
or earth whatsoever; as meadows, pastures, woods, moors,
waters, marshes, furzes and health.Co.Litt 4a. The word “land”
included not only the soil but everything attached to it, whether
attached by the course of nature, as trees, herbage, and water,
or by the hand of man, as buildings and fences. “
land” is the solid material of the earth, whatever may be
the ingredients which it is composed of whether soil, rock or
other substance.”
“Soil”
The word “soil” as per Random House Dictionary – The
unabridged Edition to include “any place or condition providing
the opportunity for growth or development”
12.11. “Soil” is the thin skin that covers the land. “Soil” is
material in the top layer of the surface of the earth on which
plants can grow and is a non-renewable resource. It takes
ages for rocks to wither into soil and ric organic matter to
build up. Land is a part of the earth, while soil refers to one
part of the land. Land, as commonly understood means, the
surface of the earth not covered by a body of water. Thus, the
term land includes soil. In the definition referred above,
“land” is defined in an inclusive manner.
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12.12. The Ld. Standing Counsel relied on the principles of
“Noscitur A Sociis' for interpretation the word 'Land'. She also
argued that contextually The Indian Income Tax treats land as
real immovable property.
The terms 'Noscitur a Sociis' is related to legal doctrine
and statutory interpretation of laws.
In Latin the term 'Noscitur a Sociis” means 'the meaning
of a word may be known from accompanying words'. It is also
used for interpreting questionable words in statutes. When a
word is ambigious, its meaning may be determined by reference
to the rest of the statute. It is one of the rules of the language
used by the Courts that helps to interpret legislation. For the
case with 'Nosticur a Sociis' the questionable meaning of a word
of doubtful words can be derived from its association with other
words within the context of the phrase. This indicates that
words in a list which is within a statute have meanings that are
related to each other.
The principle of 'Noscitur a Sociis' is a rule of
construction. It is used by the Court to interpret legislation.
This means that the meaning of an unclear word or phrase must
be detrmined by the words that surround it. In other terms, the
meaning of a word must be judged by the company that it keeps.
The questionable meaning of a doubtful word will be derived
from its association with other words. It is used wherever a
statutory provision constitutes a word or phrase that is capable
of bearing more than one meaning.
This rule is explained in the Maxwell on the interpretation
of statutes in the 12th Edition in following words-
When two or more words susceptible of analogous
meaning are coupled together, they are understood to be used in
their cognate sense. The words take their color from and are
quantified by each other, the meaning of the general words
being restricted to a sense analogous to that of the less general.
This principle needs a word of phrase or even a whole
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provision that stands alone has a clear meaning, will be given
quite a different meaning while viewed in the light of its context.
12.13. No doubt the term ‘land’, as argued by the Ld. Sr.
Standing Counsel, is generally understood as immovable
property, under the Income Tax Act and under the T.P. Act. But
in the case on hand, the context and purpose for which the term
‘Land’ has been used by the legislature has to be understood.
Use of land and performing activity on land itself, is the
requirement specified for a natural product that raises from land
itself, to be an agricultural product, the income from which is
exempt from tax. If the question to be answered is whether land
is used for production or not, then in our view strict
interpretation cannot be applied.
12.14. The term ‘Land’ in our view has to be interpreted by
using the principles of ‘Purposive Interpretation’.
The purposive approach (sometimes referred to as purposivism,
purposive construction, purposive interpretation, or the modern
principle in construction) is an approach to statutory and
constitutional interpretation under which common law courts
interpret an enactment (a statute, part of a statute, or a clause of
a constitution) within the context of the law's purpose.
Purposive interpretation is a derivation of mischief rule set in
Heydon's Case, and intended to replace the mischief rule, the
plain meaning rule and the golden rule. Purposive
interpretation is used when the courts use extraneous materials
from the pre-enactment phase of legislation, including early
drafts, Hansard's committee reports, and white papers. The
purposive interpretation involves a rejection of the exclusionary
rule.
Supreme Court in Tirath Singh v. Bachittar Singh approved and
adopted the said approach. In Shamrao V. Parulekar v. District
Magistrate, Thana, Bombay the Court reiterated the principle
from Maxwell:
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“If one construction will lead to an absurdity while
another will give effect to what commonsense would
show was obviously intended, the construction which
would defeat the ends of the Act must be rejected even
if the same words used in the same section, and even
the same sentence, have to be construed differently.
Indeed, the law goes so far as to require the Courts
sometimes even to modify the grammatical and
ordinary sense of the words if by doing so absurdity
and inconsistency can be avoided.”
In Molar Mal v. Kay Iron Works (P) Ltd., the Hon'ble Supreme
Court while reiterating that courts will have to follow the rule of
literal construction, which enjoins the court to take the words as
used by the Legislature and to give it the meaning which
naturally implies, held that there is an exception to that rule.
The Court observed:
“That exception comes into play when application of
literal construction of the words in the statute leads to
absurdity, inconsistency or when it is shown that the
legal context in which the words are used or by
reading the statute as a whole, it requires a different
meaning.”
In Mangin v. Inland Revenue Commission the Privy Council
held:
“The object of the construction of a statute, be it to
ascertain the will of the legislature, it may be
presumed that neither injustice nor absurdity was
intended. If, therefore a literal interpretation would
produce such a result, and the language admits of an
interpretation which would avoid it, then such an
interpretation may be adopted”.
12.15. ‘Soil’ is a part of the land. Land is also part of earth. The
upper strata of the land is soil and this is cultured and made fit
for production of crops, vegetables and fruits etc., by enriching
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the soil. When such soil is placed on trays, it does not cease to
be land and when operations are carried out on this “soil”, it
would be agricultural activity carried upon land itself.
12.16. If the strict interpretation, as argued by the Ld. Standing
Counsel is accepted then, when ‘Soil’ attached to earth is
cultivated, it is agricultural activity and when ‘Soil’ is cultivated
after detaching the same from earth, it is not agricultural
activity. Such an interpretation in our view, would be unintended
and unfair. The only part of the land that is cultivable, and
which is useful for agricultural activity is ‘Soil’ which is the top
layer of land. Then whether such soil is attached to land or is
placed in containers above the land should in our humble view,
not make a difference. Though these strong arguments of the Ld.
Standing Counsel appealed to us ab-initio on an analysis of the
purpose for which the term is to be interpreted, we are unable to
persuade ourselves to accept the same. If the term ‘Agri’ is
‘field’, then ‘field’ can be on land or on a ‘terrace’ or on a ‘pot’,
‘tray’ etc., In view of the above discussions, we hold that it is
important to distinguish between the meaning of the term ‘soil’
from ‘land’, because the cultured top strata of the earth's
surface, which is fit for arable cultivation, is actually what is
required for agricultural purposes and this top layer (being
‘soil’) is one on which actual agricultural growth takes place. In
contrast, the meaning attributed to land (primarily as an
immovable object) is of a wide import. For the purpose of
understanding the nexus between an agricultural operation and
an agricultural land, what needs to be inferred from the term
‘land’ is that, the cultured top layer of the earth, which is fit for
any sort of cultivation, is land for this purpose. Hence, in our
opinion, the soil which is placed on the vertical space above the
land in trays, in one sense of the term, is also land.
13. We now consider the arguments on the explanation 3 to
Section 2(1A) of the Act. The assessee relies on Explanation-3 to
Section 2(1A) which reads as follows:
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“3. For the purposes of this clause, any income
derived from saplings or seedlings grown in a
nursery shall be deemed to be agricultural income.”
Thus, what is not otherwise agricultural income, is deemed
under the explanation as agricultural income.
Shri P. Chidambaram, the then Hon'ble Finance Minister, while
presenting Union Budget for 2008-09 at para 167 stated as
follows:
“Agriculture income is exempt from income tax. However,
courts have ruled the growing saplings or seedlings of land is
agriculture. But growing them in pots is not agriculture. This
does not seem to be fair. Hence, I propose to exempt from tax
income arising from saplings or seedlings grown in a nursery.”
(Emphasis on)
While introducing explanation 3 to Section 2(1A) of the Act, in
the explanatory note at para 4.2. It is stated as follows:—
“With a view to giving finality to the issue, and Explanation in
Section 2 of the Income-tax Act, has been inserted providing that
any income derived from saplings or seedlings grown in a
nursery shall be deemed to be agricultural income. Accordingly,
irrespective of whether the basic operations have been carried
out on land, such income will be treated as agricultural income,
thus qualifying for exemption under sub-section(1) of Section 10
of the Act.”
(Emphasis ours)
13.1. It is true that this Explanation 3 to Section 2(1A) of the
Act, is a deeming provisions in the Act. It is also true that
deeming fiction cannot be extended and should be strictly
restricted to the fiction created. The impression that this
amendment was brought into the statute to nullify certain
judicial pronouncements is factually incorrect. The courts have
decided that income from nursery is agricultural income.
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13.2. The Hon'ble High Court of Madras in Commissioner of
Income-tax v. Soundarya Nursery, (2000) 241 ITR 530
(Madras), in which the court observed as under:
“8. All the products of the land, which have some
utility either for consumption or for trade or
commerce, if they are based on land, would be
agricultural products. Here, it is not the case of
the revenue that without performing the basic
operations, only the subsequent operations, as
described in the decision of the Apex Court have
been performed by the assessee. If the plants sold
by the assessee in pots were the result of the basic
operations on the land on expending human skill
and labour thereon and it was only after the
performance of the basic operations on the land,
the resultant product grown or such part thereof
as was suitable for being nurtured in a pot, was
separated and placed in a pot and nurtured with
water and by placing them in the greenhouse or in
shade and after performing several operations,
such as weeding, watering, manuring, etc., they
were made ready for sale as plants all these
operations would be agricultural operations and
all this involves human skill and effort. Thus, the
plants sold by the assessee in pots were the result
of primary as well as subsequent operations
comprehended within the term ‘agriculture’ and
they are clearly the products of agriculture.”
13.3. Thus, the Hon'ble High Court gave breadth to a more
expansive definition of the term ‘agricultural products’ by
including within its meaning all products of land, having some
utility either for consumption or for trade or commerce and
also, inferred that plants sold by the assessee in pots to be
comprehended within the term ‘agriculture’. This judgment was
delivered in the year 1998, August 5th, much before the
introduction of explanation 3 to Section 2(1A) of the Act in the
year 2008. Similar is the judgment in the case of CIT, Chennai v.
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K. N. Pannerselvam, (2016) 75 taxmann.com 98 (Madras). The
judgment of the Hon'ble Allahabad High Court in
H.H.Maharaja Vibhuti Narayan Singh v. State of U.P., (1967) 65
ITR 364, was considered by the Hon'ble Madras High Court in
the case of Soundarya Nursery (supra) at para 6 of the
judgment. The Court held that the observation of the Hon'ble
Allahabad High Court was clearly an obiter.
This judgment in the case of Soundarya Nursery (supra)
required basic objections to be performed on land for the
income to be exempt as agricultural income. Before the
introduction of Explanation 3 to Section 2(1A) of the Act,
growing plants in pots was interpreted as agricultural activity
by the courts. What this explanation does is to expand this
interpretation further. It lays down that the basic operations are
not necessary in nurseries, as required by the judgment in the
case of Soundarya Nursery (see explanation note). Hence, even
without this explanation, the income from plants grown in pots
was held as agricultural income by the courts. As this
explanation is a deeming provisions, we cannot apply the same
to the assessee. But as the assessee performs basic operations
on soil, the ratio of the judgment in the case of Soundarya
Nursery (supra) applies to the facts of this case.
13.4. The Ahmedabad Bench of the ITAT in the case of DCIT v.
Best Roses Biotech Ltd., (2012) 17 taxmann.com 56 (Ahd.) has
held as follows:—
“6.1 Activity in question : The company had
developed a greenhouse for the establishment of a
floriculture project. The company had grown good
quality of rose flowers and also exported them
abroad. It was explained that for the plantation of
roses a very well treated soil is required. The
quality of the soil is therefore tested. Manures are
mixed for preparing a base for growing the rose
plants. The company has installed a proper
drainage system. Certain operations such as
mixing of soil and watering of plants through
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drainage are explained. Then the activity of
pruning and bending of growing plants carried out
to get best size of rose buds. It has also been
explained that pest control is also required.
Insecticides are sprinkled to save the plants from
any disease. From the facts as emerged from the
compilation filed we have gathered that within
greenhouse the floriculture activity comprises of
growing of rose by deploying hydroponics
technique for the farming of best quality roses. It
is stated that the assessee has deployed a budding
technical plant. Further it was explained that root
stocks were brought from the market and placed in
the green house. The plantation and the
generation of sapling was nothing but agricultural
activity. The mother plant is otherwise reared on
earth. For rearing of mother plant human labour
is involved. The tilling of soil, watering and other
primary agricultural activity is the basic
requirement for the growing of the rose plants.
Subsequently the saplings are planted on plastic
trays, which were kept at the height 2-3 ft. placed
on MS stand. It was explained that the purpose of
growing the rose plants at a height is primarily to
avoid the pest and to develop in a controlled
atmosphere. By this method, the rose plant is
protected from climate, pest, as well as other
disease, to minimize the possibility of damage. The
drainage system for watering the plants with the
help of dipper is required. The watering of rose
plants are also a technical method to avoid
excessive watering so that the roots of the rose
plants should not get damaged. The commercial
greenhouse i.e. “bent canopy” is used for various
benefits so that the sun-light and the humidity
level both can be maintained. For meeting the
international demand, it is explained, that the
assessee-company adopted best measure to ensure
best quality of rose.
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6.2 Conditions of Agriculture operation-From the
side of the respondent-assessee there was detailed
discussion about the growing of rose plants and
other connected agricultural operation carried out
by the assessee. However, the objection of the
Revenue was that the rose plants were not grown
on the land, therefore the generation of income
was not directly connected with the operation of
land. Somehow we are not agreeing with the said
proposition of the Revenue-department because on
due consideration of the activity as explained to
us, it is not justifiable to say that the growing of
rose plants at all is not connected with the
utilization of land. It is not in dispute that the
agricultural land was acquired by the assessee
from agriculturists. It is also not in disputed that
mother plats are always been grown on the
agricultural land.
As far as ingredients of basic operation is
concerned the assessee's case is that the
technology deployed is (i) use of soil and
operation on soil (ii) use of particular soil type
contents i.e. coco peat, manure, etc. present in the
soil, (iii) drainage system as over watering harms
the roots as well as quality (iv) bending shoots for
maximizing the quality of roses, and (v) pest and
diseases control for providing protection to roses.
Therefore we hold that the activity which is
connected with the land cultivation, such as
ploughing of field, leveling of field, sowing of seed
in the ploughed and leveled field, growing of
plants, as case the may be, plantation, manuring,
watering, weeding-out of weeds, so and so forth.
These agriculture operations are said to be ‘basic
cultivation activity’ and thereafter an agriculturist
has to perform ‘subsequent agriculture operation’,
namely tending of grown plants, pruning, cutting
or shaping and finally harvesting of crop. We have
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to clarify, as held by few honourable courts as
well, that the subsequent operations ought to be a
continuation of basic Agriculture operation. The
fundamental requirement is that it should remain
connected with the basic agriculture operation.”
13.5. We agree with this view of the Tribunal. The process
followed in the case of Best Roses Biotech (P.) Ltd., (supra) in
similar to the process followed by the assessee.
13.6. Hence, the view of the courts was that the income in
question was agricultural income and the explanation only
acknowledges this fact. We should not take a ‘pedantic’ view on
this issue. The view of the legislature is more expansive and
purposive than the view of the courts.
13.7. In view of the above discussion, we conclude that “soil”,
even when separated from land and placed in trays, pots,
containers, terraces, compound walls etc., continues to be a
specie of land and hence “land” for the sole purpose of
determining whether activity performed on such land is for
production of an agricultural product.
14. The second issue is whether mushroom is a “fungi” and not
“vegetable”. The Revenue relied on the word ‘spawn’ while the
assessee relied on the word ‘mycelium’. The definitions are
extracted for ready reference:
“Spawn”
The word "Spawn" is defined by Collins dictionary as the
Spawn is a soft, jelly-like substance containing the eggs of fish,
or of animals such as frogs, When fish or animals such as frogs
spawn, they lay their eggs.
1. To produce or deposit (eggs, sperm, or young)
2. To bring forth or be the source of (esp. something
regarded with contempt and produced in great numbers)
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3. Horticulture to plant with spawn, or mycelium noun
4. The mass of eggs or young produced by fish, mollusks,
crustaceans, amphibians, etc.
5. Something produced, esp. in specif., numerous
offspring or progeny great quantity; usually contemptuous.
6. The mycelium of fungi, esp. of mushrooms grown to be
eaten.
The word "spawn" is defined by Random House Dictionary -
The mass of eggs deposited by fishes, amphibians, pmollusks,
crustaceans etc.
2. Both, the mycelium of mushrooms, esp of the species
grown for the market.
3. To plant with mycelium.
“Mycelium”
The word "Mycelium" is defined by Random House
Dictionary as - The vegetative part or thallus of the fungi, being
composed of one or more filamentous elements, or hyphae.
14.1. Ld. Counsel for the assessee submitted that mycelium is a
vegetative part of the fungi. Ld. Standing Counsel submits that
vegetative part does not mean that the classification is vegetable
and it only refers to the reproductive feature of the "fungi". "A
mushroom or toadstool, is the fleshy, spore-bearing fruiting
body of a fungus, typically produced above ground on soil or on
its food source and the scientific classification is Kingdom;
Fungi, Division. Basidiomycota" (Wikipedia).
14.2. On a careful consideration of the material on record, we
conclude that mushroom, is not a 'vegetable' 'plant' or an
'animal' but a 'fungus'.
14.3. The contention of the assessee is that, what is produced by
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performing basic operations on the soil, is an agricultural
product, even though the product is not a 'plant' or the 'flower'
or a 'vegetable' or a 'fruit'. It was emphasized that the nature of
the product is irrelevant as far as it is produced by performing
some basic operations on the soil.
14.4. In the case of CIT Vs. Raja Benoy Kumar Sahas Roy
[(1957) 32 ITR 466], as already stated, it is laid down that the
"product" should be "raised on the land" by "performing some
operation on land by expenditure of human skill and labour"
and that the "product" should be "of some utility for
consumption, for trade and commerce".
14.5. The term "product" is defined as:
(a) an article of substance i.e. manufactured or refined for
sale.
(b) A thing or person that is the result of an action or process.
(c) A product in modern times is also defined as a item or
thing which is offered for sale. A product can be a service
or an item. It can be physical or in virtual or cyber form.
14.6. It is clear that we cannot restrict the word "product" to
'plants', 'fruits', 'vegetables' or such botanical life only. The only
condition is that the "product" in question should be raised on
the land by performing some basic operations. Mushroom
produced by the assessee is a product. This product is raised on
land/soil, by performing certain basic operation. The product
draws nourishment from the soil and is naturally grown, by such
operation on soil which require expenditure of "human skill and
labour". The product so raised has utility for consumption, trade
and commerce and hence would qualify as an "agricultural
product" the sale of which gives rise to agricultural income.
14.7. Mushroom, like vegetables and other crops or plants are
grown on soil/land and are always attached to the soil until
harvested. They draw their nourishment from the soil only.
The product mushroom does not arise from any secondary
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agricultural operation. Unlike in the case of CIT vs. Kokine
Dairy (1938) 6 ITR 502, relied on by the Ld.AO it cannot be
said that production of mushroom is remotely connected with
and. This product arises from land and is attached to land
during growth and thereafter, just like 'plants' or a 'crop'.
Comparison made by the Ld.AO with sale of silk cocoons by
relying on the judgment in the case of K.Lakshmansa & Co. vs.
CIT [1981] 128 ITR 283 (Kar.), is wrong, as on facts silkworms
feed on mulberry leaves and are not products which are raised
from land. Mulberry leaves which are product arising from land,
are fodder to silk worms.
14.8. Hence, we conclude that Mushroom on the facts and
circumstances of this case is an agricultural product raised
from land.
15. The third issue is whether agricultural production done
under "controlled conditions", results in the 'product' so raised
not being a 'product from agricultural activity'.
15.1. Each and every agricultural operation involves certain
procedures and protocols. Certain conditions are necessary for
natural growth of the product. The degree of control and the
type of scientific input differs from product to product. The type
of soil to be used, the nature of agricultural operations to be
undertaken, material required to be used to enrich the soil, the
timing of sowing, transplanting, harvesting etc., the quantity and
quality of inputs such as water, fertilizer, pesticides etc. to be
used and the timing at which they have to be used, are all
controls that a farmer exercises in every type of agricultural
activity. There can be no agriculture without controlling the
conditions of production by human intervention. Just because
the degree of control of the conditions are greater in some cases,
as compared to others, the product produced out of such process
would not cease to be an agricultural product. The degree of
control is irrelevant in arriving at a conclusion on this issue.
With the advancement of technology, every aspect of production
is monitored and controlled, so as to obtain optimum use of the
produce. This is true with the use of greenhouse technologies.
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15.2. The ITAT Pune Bench in the case of Asst. CIT Vs. KF Bio
Plants (P.) Ltd. [Pune Bench 'A', ITA No. 1110/PN/2011] held
that the nature of agricultural income would not change merely
because agricultural operation was carried out in a greenhouse
under a controlled environment. The assessee in that case was
engaged in the business of plant floriculture and tissue culture,
and claimed exemption of income as being agricultural income
under section 10(1) of the Act. The A.O. disallowed the
exemption on the ground that basic operation was done in a
greenhouse. The ITAT held that the involvement of a greenhouse
and controlled environment would not change the nature of
agricultural income. We endorse this view.
15.3. The ITAT Ahmedabad Bench 'A' decision in the case of
DCIT Vs. Best Roses Biotech (P.) Ltd., [(2012) 17
Taxmann.com 56 (Ahd.)] has analyzed the advanced
mechanism of growing rose plants in a controlled environment
and held as under:
“7.2. Considering the advancement of technology
and the use of the advanced equipment in
cultivation coupled with the conventional
cultivation method put together, it has to be held
that the operation carried out by the assessee was
agricultural operation in nature. Therefore, the
income in question was an agricultural income. It
cannot be included in total income being with the
ambits of the provisions of Section 10 (1).
We concur with this view.
15.4. With the advancement of modern technology, we find that
most of the crops, fruits, vegetables and flowers are being grown
in controlled conditions, in green houses and in pots. In these
advanced scientific agricultural techniques, soil is removed from
the land and is placed in different containers such as pots, trays
and stands etc. and agricultural operations are performed on
them to yield the desired results of production of products which
have some utility.
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15.5. In view of the above discussion we hold that, just because
mushrooms are grown in controlled conditions it does not
negate the claim of the assessee that the income arising from the
sale of such mushrooms is agricultural income.
16. We now discuss the other contentions raised by the parties.
• The assessee submits that the Govt. authorities and
Financial Institutions treated growing of mushrooms as
agriculture.
• That for the purpose of Mushroom cultivation, the
Assessee Company borrowed funds from State Bank of
Hyderabad with guidance provided by National Bank for
Agriculture and Rural Development (NABARD) and the loans
sanctioned are agricultural loans.
• NABARD conducted survey and observed that
mushrooms are fruiting bodies of some members of lower group
oup of plants. They are fleshy spore bearing structures
containing numerous spores which are functionally similar to
seeds of higher plants. They are used in reproduction of
mushrooms. After conducting the studies, the NABARD certified
Mushroom cultivation as an agricultural operation and kept the
same under "agricultural" segment.
• That for the purpose of commencement of production
activity, the assessee requires a certification from the Ministry of
Commerce and Industry, Govt. of India: The said Ministry also
categorized activity as "other agricultural industry". The
assessee is also granted licence by the Fruit products Order,
1995 by the Ministry of Food Proceedings Industries,
Government of India.
• The Central Excise Department classified in chapter 7
that the Mushrooms are Edible Vegetables and did not levy any
tax on the assessee.
• The Ministry of Agriculture, Government of India
categorized Mushroom cultivation as the agricultural operation.
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Various Universities in India and abroad also treated the
Mushroom cultivation as an Agricultural Operations.
16.1. The Ld. Standing Counsel submits that, the view of various
Government and Financial Institutions, should not influence the
interpretation of a statute. She submits that the statute has to be
interpreted based on the language used therein and not based on
views of universities and other organisations.
16.2. Words of the statute, when not defined, have to be
construed and understood in their popular sense and according
to their ordinary meaning. No doubt, statute cannot be
interpreted based on the views of different Governmental
Authorities and Financial Institutions, as their purpose and
intent would be different, from the purpose and intent of the
enactment in question. But the manner in which other
Government authorities and agencies views this issue, can be
gathered and understood from this material. A common man's
view, as expressed by the organisations, have some use in
coming to a conclusion on this issue. It would not be
appropriate to hold that different arms of the Government have
contrary views on the same issue.
16.3. Now we consider the argument of the Ld. Standing
Counsel by placing reliance on Section 80JJA of the Act. The
assessee relies on explanation 3 inserted in Section 2(1A) of the
Act. Much water has flown since the introduction and repeal of
Section 80JJA. With the passage of time the views change. We
are of the opinion that the conclusion on this issue cannot be
guided by this Section 80JJA of the Act.
16.4. The order of the Bangalore Bench of the Tribunal in the
case of Blue Mountain Vs. ITO, (1985) 14 ITD 254 (Bang.),
does not discuss the issue in question and hence not relevant.
The Pune Bench of the Tribunal in the case of ACIT Vs.
Malhotra Mukesh Satpal, (2008) 115 ITD 467 (Pune), is on the
issue of levy of penalty u/s 271(1)(c) and hence not relevant. The
decision of the Chandigarh Bench of the Tribunal in the case of
Rachna Dogra [ITA.No.944/Chd/2010] is also not relevant, as
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the observations on the issue in question are one of 'sub
silentio'.
16.5. The Chandigarh 'A' Bench of the ITAT in the case of
Chander Mohan Vs. ITO in ITA No. 389.377/Chd/2012, order
dt. 28.10.2014, in our view, does not lay down the correct law in
the facts and circumstances of the case. In any event, the type of
mushroom grown in that case and the place at which it was
grown and the fact that the process of growth was not properly
explained. As the division Bench has not agreed with this view of
the Pune Bench of the ITAT, this issue was referred to this larger
Bench.
16.6. Hence as basic operations are performed by expenditure of
human skill and labour on land by the assessee, which results in
the raising of the 'product' called "Edible white button
mushroom" on the land and as this product has utility for
consumption, trade and commerce, the income arising from the
sale of this product is agricultural income and hence exempt u/s
10(1) of the Act.
16.7. Thus we uphold the order of the Ld. CIT(A) on this issue.
17. In view of the above discussion, we answer the question
referred to us by the Hon'ble President in the affirmative, in
favour of the assessee.
18. Before parting, we place on record our appreciation for the
excellent contribution of the Ld. Standing Counsel
Ms.K.Mamata Choudary and the Ld. Counsels for the assessee
Shri S.Rama Rao and Shri K.Gopal.
19. In the result, all the appeals of the revenue and cross-
objections of the assessee are dismissed for all the four
assessment years."
8. The learned Senior Standing Counsel for the Appellant/Income Tax
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Department would submit that the said decision of the Tribunal in the case of
DCIT Vs. Inventaa Industries Private Limited, [2018] 65 ITR 625 (Hyd.)
cannot be said to have attained finality as appeal in I.T.A.Nos.58, 70, 74 and
100 of 2019 have been preferred against the aforesaid decision of the Tribunal
and are still pending before the Telangana High Court under Section 260-A of
the Act.
9. Learned Senior Standing Counsel for the Appellant/Income Tax
Department further drew attention to the clean copy of the Assessment Order
dated 28.12.2019 passed for the Assessment Year 2017-2018 under Section
143(3) of the Act, which captures the screen-shots from the web portal of the
Respondent/Assessee. It is submitted that initially income was declared from
sale of white 'Button Mushrooms', depriciation was claimed on plant and
machinery and thereafter exemption was claimed by the Respondent/Assessee
from such income.
10. Learned Senior Standing Counsel for the Appellant/Income Tax
Department would refer to Section 2(1A) of the Act which defines
“Agricultural Income” and contend that the Respondent/Assessee has not
satisfied the requirements specified in the definition of the said provision to
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avail exemption from income tax from the sale of 'Button Mushroom' under
the provisions of the Act.
11. It is submitted that since, in the present case, the products, viz., white
'Button Mushroom' are not grown on land. It is submitted that it did not
involve any human labour or skill on use of land. Therefore, it cannot be
considered as products of “Agriculture”. It is therefore submitted that income
derived there from are not “Agricultural Income” though the
Respondent/Assessee performed some ancilliary operations, such as collecting
and marketing.
12. Learned Senior Standing Counsel for the Appellant/Income Tax
Department would point out that the term 'Agriculture' is to be understood
within its scope the basic as well as the subsequent operations in the process of
agriculture and rising on the land of products which are some utility either for
consumption for trade or commerce. The learned Senior Standing Counsel
would further submit that the product, white 'Button Mushroom' was neither a
“plant”, nor a “fruit” or a “vegetable”, but a “fungus” in its strict sense of
scientific classification and processing them on trays and was grown by making
use of the field. There was no tillage of land and hence, the income earned by
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the Respondent/Assessee would fall under the head 'income from business' only.
13. Learned Senior Standing Counsel for the Appellant/Income Tax
Department has relied on the following decisions:-
i. State of Kerala Vs. Karim Pharuvi Tea Estates Ltd.,
(1966) 60 ITR 0275
ii. C.Hanumantha Rao (decd) and another Vs. CIT, (2011)
335 ITR 00117
iii. Blue Mountain Food Products Ltd., Vs. ITO, (1985) 14
ITD 254 (Bang.)
iv. Chandermohan Vs. ITO, Ward-4, Yamuna Nagar,
[(2014)] 52 Taxmann.Com 203 (Chandigarh – Trib)
v. Mayuri Yeast India Private Limited Vs. State of UP and
another, (2008) 5 SCC 680
vi. Commissioner of Income Tax Vs. Rashtradoot (HUF),
(2019) 412 ITR 0017 / (2019) 262 Taxman 0360 (SC)
14. On the other hand, the learned counsel for the Respondent/Assessee
would submit that the process of cultivation of white 'Button Mushroom' is in
a way of soil being mixed with clay, paddy straw, chicken manure, etc. and then,
it is loaded in big trays and the spawn/seeds cultured from matured mushrooms,
are placed in the prepared soil and this involves ruffling the soil, scratching the
soil, watering the soil using fungicide/pesticide/bactericide, weeding, disease
control, pruning, declustering, removing undesirable under growth, etc., and
after the mushroom is harvested, it is kept in cold storage due to its nature and
thereafter, dispatched for sale.
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15. Therefore, the learned counsel for the Respondent/Assessee would
submit that mushroom cultivation is an 'Agricultural Activity' and it requires
expediture of 'human skill and labour' and the product mushroom has utility for
consumption, trade and commerce and hence, would qualify as an
'Agricultural Product' and the sale of such product gives rise to agricultural
income.
16. Learned counsel for the Respondent/Assessee pointed out that without
soil which is a part of land, Mushroom cannot be harvested and the word 'land'
referred in Section 2(1A) (b) of the Act includes the 'soil' thereon and the
Respondent/Assessee uses soil to grow the Mushrooms and merely because the
soil is placed in trays and the Mushrooms are grown in the trays does not mean
that the income from the same is not derived from the land.
17. Learned counsel for the Respondent/Assessee also pointed out that in
general sense, when soil attached to earth is cultivated, it is considered as
'Agricultural Activity' and when soil is cultivated after detaching the same
from earth, it can still be considered as 'Agricultural Activity' and no other
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meaning can be given to it as such, the Respondent/Assessee has satisfied the
norms prescribed under Section 2(1A) of the Act. Therefore, the income
derived from the cultivation of 'Button Mushrooms' would fall under the
purview of 'Agricultural Income' as per Section 2(1) of the Act and therefore,
the Respondent/Assessee is eligible for exemption from tax laibility for the
aforesaid income.
18. Learned counsel for the Respondent/Assessee has relied on the
following decisions:-
i. Commissioner of Income-tax Vs. Raja Benoy
Kumar Sahas Roy, [1957] 32 ITR 466 (SC)
ii. National Thermal Power Co. Ltd., Vs.
Commissioner of Income-tax, [1998] 97 Taxman 358
(SC)
iii. Smt.Manyam Meenakshamma Vs. Commissioner of
Wealth-tax, [1967] 63 ITR 534 (AP)
iv. Blue Mountain Food Products Limited Vs. Income-
Tax Officer, [1985] 14 ITD 254 (Bang.)
v. Commissioner of Income-tax Vs. Soundarya
Nursery, [2002] 123 Taxman 372 (Madras)
vi. Assistant Commissioner of Income-tax, Circle 2,
Pune Vs. Malhotra Mukesh Satpal, [2008] 115 ITD
467 (Pune)
vii. Commissioner of Income-tax, Meerut Vs. Green
Gold Tree Farmers (P.) Ltd., [2008] 167 Taxman 151
(Uttarakhand)
viii. Commissioner of Income-tax Vs. Jagish Ram
Krishan Chand, [2008] 304 ITR 45 (Himachal
Pradesh)
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ix. Deputy Commissioner of Income-tax, Navsari
Circle Vs. Best Roses Biotech (P.) Ltd., [2012] 17
taxmann.com 56 (Ahd.)
x. Chander Mohan Vs. Income-tax Officer, Ward-4,
Yamunanagar, [2014] 52 taxmann.com 203
(Chandigarh – Trib.)
xi. Deputy Commissioner of Income-tax, Circle-2(1),
Hyderabad Vs. Inventaa Industries (P.) Ltd., [2018]
95 taxmann.com 162 (Hyderabad – Trib.) (SB)
19. We have considered the arguments advanced by the learned Senior
Standing Counsel for the Appellant and the learned counsel for the Respondent.
20. The facts as stated are not in dispute. The Respondent/Assessee was
incorporated in the year 2017-2018 and had initially treated the income from the
sale of white 'Button Mushroom' as “income from business” for the
Assessment Year 2017-2018. A Return of the Income was also filed by the
Respondent/Assessee to that effect on 05.11.2017 under Section 139(1) of the
Act.
21. While computing the total income of any previous year,
“Agricultural Income” of any person shall not be included under Section 10(1)
of the Act.
22. However, on 31.10.2018, a revised Return of Income was filed by the
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Respondent/Assessee under Section 139(4) of the Act declaring a 'nil' income
for the Assessment Year 2017-2018 from the sale of 'Button Mushroom'.
This revised Return of Income was filed pursuant to the decision of the Special
Bench of the Tribunal rendered on 09.07.2018 in M/s.Inventaa Industries Pvt.
Ltd's case (cited supra).
23. For the Assessment Year 2018-2019, the Return of Income was filed
on 28.09.2019. There, the Respondent/Assessee had declared a total income of
Rs.72,19,468/- for sale of other products. The Respondent/Assessee had
declared “Agricultural Income” of Rs.11,44,54,027/- from sale of agricultural
products by claiming exemption from tax liability under Section 10(1) of the
Act. The aforesaid Returns of Income filed by the Respondent/Assessee were
selected for limited scrutiny under a CASS [Computer-Assisted Scrutiny
Selection].
24. By separate orders dated 28.12.2019 and 23.09.2021 for the
respective Assessment Years, the assessment was completed for the
Respondent/Assessee. Income from sale of white 'Button Mushrooms' were
however treated as “income from business” and were taxed accordingly in the
hands of the Respondent/Assessee. Thus, the benefit of exemption under
Section 10(1) of the Act was denied to the Respondent/Assessee. Therefore, the
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Respondent/Assessee filed an appeal before the Appellate Commissioner.
25. The Appellate Commissioner allowed the appeal following the
decision of the Special Bench of the Income Tax Appellate Tribunal (ITAT) in
M/s.Inventaa Industries Pvt. Ltd's case (cited supra) vide two separate orders
both dated 12.09.2022 in the two separate appeals of the Respondent/Assessee
by accepting the contention that the income from sale of white 'Button
Mushrooms' was “Agricultural Income” in the hands of the
Respondent/Assessee within the meaning of Section 2(1A) of the Act and thus
exempt from tax liability under Section 10(1) of the Act.
26. Further, Appeals filed by the Appellant/Income Tax Department were
also dismissed by the Income Tax Appellate Tribunal (ITAT) following the
decision of the Special Bench of the Income Tax Appellate Tribunal (ITAT) in
M/s.Inventaa Industries Pvt. Ltd's case (cited supra).
27. The issue which was answered by the Special Bench of the Tribunal
in M/s.Inventaa Industries Pvt. Ltd's case (cited supra) which was relied by
the Appellate Tribunal are presently subject matter of appeal before the
Telangana High Court under Section 260-A of the Act in I.T.A.Nos.58, 70, 74
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and 100 of 2019.
28. Though the Special Bench of the Income Tax Appellate Tribunal
(ITAT) in M/s.Inventaa Industries Pvt. Ltd's case (cited supra) has given a
detailed order, we are afraid that it has not examined the issue from the point of
view of the definition of “Agricultural Income” under Section 2(1A) of the
Act. Therefore, we proceed to give our view in the light of the definition
“Agricultural Income” in Section 2(1A) of the Act.
29. The scope of enquiry in these appeals are therefore confined to the
definition of “Agricultural Income” under Section 2(1A) of the Act and its
relevance to the facts of the case. For the sake of clarity, the definition of
“agricultural income” under Section 2 (1A) of the Act is reproduced below:-
“Agricultural Income” means-
(a) any rent or revenue derived from land which is situated in
India and is used for agricultural purposes
(b) any income derived from such land by-
i. agriculture; or
ii. The performance by a cultivator or receiver of
rent-in-kind of any process ordinarily employed by
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a cultivator or receiver of rent-in-kind to render the
produce raised or received by him fit to be taken to
market;or
iii. The sale by a cultivator or receiver of rent-in-kind
of the produce raised or received by him, in respect
of which no process has been performed other than
a process of the nature described in paragraph (ii)
of this sub-clause;
(c) any income derived from any building owned and
occupied by the receiver of the rent or revenue of any
such land, or occupied by the cultivator or the receiver
of rent-in-kind, of any land with respect to which, or the
produce of which, any process mentioned in paragraphs
(ii) and (iii) of sub-clause (b) is carried on:
Provided that-
i. the building is on or in the immediate vicinity of the land,
and is a building which the receiver of the rent or revenue
or the cultivator, or the receiver of rent-in-kind, by reason
of his connection with the land, requires as a dwelling
house, or as a store-house, or other outbuilding, and
ii. the land is either assessed to land revenue in India or is
subject to a local rate assessed and collected by officers
of the Government as such or where the land is not so
assessed to land revenue or subject to a local rate, it is
not situated —
(A) in any area which is comprised within the jurisdiction
of a municipality (whether known as a municipality,
municipal corporation, notified area committee, town
area committee, town committee or by any other name) or
a cantonment board and which has a population of not
less than ten thousand or
(B) in any area within the distance, measured aerially, —
(I) not being more than two kilometres, from the local
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limits of any municipality or cantonment board referred to
in item (A) and which has a population of more than ten
thousand but not exceeding one lakh; or (II) not being
more than six kilometres, from the local limits of any
municipality or cantonment board referred to in item (A)
and which has a population of more than one lakh but not
exceeding ten lakh; or (III) not being more than eight
kilometres, from the local limits of any municipality or
cantonment board referred to in item (A) and which has a
population of more than ten lakh.
Explanation 1.—For the removal of doubts, it is hereby
declared that revenue derived from land shall not include and
shall be deemed never to have included any income arising from
the transfer of any land referred to in item (a) or item (b) of sub-
clause (iii) of clause (14) of this section.
Explanation 2.—For the removal of doubts, it is hereby
declared that income derived from any building or land referred
to in sub-clause (c) arising from the use of such building or land
for any purpose (including letting for residential purpose or for
the purpose of any business or profession) other than
agriculture falling under sub-clause (a) or sub-clause (b) shall
not be agricultural income.
Explanation 3.—For the purposes of this clause, any income
derived from saplings or seedlings grown in a nursery shall be
deemed to be agricultural income.
Explanation 4.—For the purposes of clause (ii) of the proviso
to sub-clause (c), “population” means the population according
to the last preceding census of which the relevant figures have
been published before the first day of the previous year.”
30. There are three parts to the definition of “Agricultural Income” in
Section 2(1A) of the Act. Sub-clause (a) and (b) to Section 2(1A) of the Act
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deal with “rent” or “revenue” derived from land or income derived from such
land.
31. The common denominator in sub-clause (a) and (b) to Section 2(1A)
of the Act is either “rent” or “revenue” derived from land or income derived
from land used for 'Agricultural Purposes'.
32. Sub-clause (c) to Section 2(1A) of the Act deals with income from
building situated on “such land” and/or “any land”. Only these categories of
income are “Agricultural Income” within the meaning of Section 2(1A) of
the Act.
33. For the purpose of our discussion and for the sake of clarity, Section
2(1A) of the Act can be dissected and simplified in the following Table:-
Section 2(1A) of the Act
(a) (b) (c)
Any rent or revenue Income from “such Any Income derived
derived from “Land: Land” by:- from “Buildings”,
under any of the
following,
instances:-
(i) which is situated (i) agriculture; (i) Any income
in India; and derived from any
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Section 2(1A) of the Act
building owned and
occupied by the
receiver of the rent of
any such land; or
(ii) Any income
(ii)which is used for (ii) the performance by a
derived from any
agricultural cultivator or receiver of building owned and
purposes. rent-in-kind of any occupied by the
process ordinarily receiver of revenue
of any such land; or
employed by a cultivator
or receiver of rent-in-
kind to render the
produce raised or
received by him fit to be
taken to market;
(iii) the sale by a (iii)Any income
cultivator or receiver of derived from any
rent-in-kind of the building occupied by
the cultivator of any
produce raised or
land; or
received by him, in
respect of which no
process has been
performed other than a
process of the nature
described in paragraph
(ii) of this sub-clause.
(iv) Any income
derived from any
Building occupied by
the receiver of rent in
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Section 2(1A) of the Act
kind of any land.
with respect to
which, or the
produce of which
any process
mentioned in
paragraphs (ii)and
(iii) of sub-clause (b)
are/were carried on.
34. We make it clear that what is contemplated in sub-clause (a) and (b)
to Section 2(1A) of the Act is income from the use of land for “Agricultural
Purpose” which is used for any of the three mentioned categories in sub-clause
(b) to Section 2(1A) of the Act.
35. There is a subtle difference between the income contemplated in sub-
clause (a) and (b) to Section 2(1A) of the Act. Sub-clause (a) to Section 2(1A)
of the Act would cover with any income from “rent” or “revenue” derived from
land which is/are used for “Agricultural Purpose”. The bottom line is such
land should be situated in India and such land is used for “Agricultural
Purposes”.
36. Although not illustrated, sub-clause (a) to Section 2(1A) of the Act
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could cover the situation where there is a tenancy of land used for
“Agricultural Purposes” or where direct revenue is derived from the land used
for “Agricultural Purposes”. Sine qua non for that Income to qualify as an
“Agricultural Income” is that such income should be derived from land used
for “Agricultural Purposes”.
37. The expression ‘Agricultural Purpose’ is not defined in the Act
although the expression ‘Charitable Purpose’ has been speficically defined in
Section 2(15) of the Act. We are not concerned with the definition of
‘Charitable Purpose’ in these cases. Therefore, we do not wish to expatiate
on the same.
38. Suffice to state that the case of the Respondent/Assessee does not fall
within the purview of Sub Clause (a) as the income is not from the use of the
land. The facts of the case makes it clear that income of the
Respondent/Assessee does not comes within the purview sub-clause (a) to
Section 2(1A) of the Act as admittedly the income of the
Respondent/Assessee is not from the “land” used for “Agricultural Purpose”.
39. Sub-clause (b) to Section 2(1A) of the Act is another species of
“Agricultural Income” from “such land”. Use of the expression “such land”
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implies “Agricultural Land” used for “Agricultural Purpose”.
40. The expression “Agricultural Land” is defined in Section 2(14)(iii)
of the Act. During the period in dispute, the aforesaid definition read as under:-
“2.(14) (iii) agricultural land in India, not being land situate-
(a) in any area which is comprised within the jurisdiction of
a municipality (whether known as a municipality,
municipal corporation, notified area committee, town
area committee, town committee, or by any other name)
or a cantonment board and which has a population of not
less than ten thousand; or
(b) in any area within the distance, measured aerially-
I. not being more than two kilometres, from the local
limits of any municipality or cantonment board
referred to in item (a) and which has a population of
more than ten thousand but not exceeding one lakh; or
II. not being more than six kilometres, from the local
limits of any municipality or cantonment board
referred to in item (a) and which has a population of
more than one lakh but not exceeding ten lakh; or
III. not being more than eight kilometres, from the local
limits of any municipality or cantonment board
referred to in item (a) and which has a population of
more than ten lakh.
Explanation.- For the purposes of this sub-clause, “population”
means the population according to the last preceding census of
which the relevant figures have been published before the first
day of the previous year.”
41. Sub-clause (b) to Section 2(1A) of the Act treats the income derived
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from “such land” as “Agricultural Income”, if such income is derived, by:-
(i) (ii) (iii)
Agriculture; the performance of the sale
or any process ordinarily
employed:-
1. by a cultivator of 1.by a cultivator of
the produce raised; or the produce raised;
or
2. receiver of rent-in- 2. receiver of rent-in-
kind received, kind received ,
to render such in respect of which no
produce raised or process has been
recevied fit to be performed other than a
taken to market. process of the nature
described in paragraph
(ii) of this sub-clause.
42. The first situation that is contemplated in sub-clause (b)(i) to Section
2(1A) of the Act is relatable to direct income from “Agriculture” simpliciter
from “such land”. The second situation that is contemplated in sub-clause
(b)(ii) to Section 2(1A) of the Act is relatable again to “Agricultural Income”
from “such land” where there is performance of any process ordinarily
employed either by:-
1. a “cultivator” to render the produce raised fit to be taken to
the market; or
2. By “receiver of rent-in-kind” to render the produce
received fit to be taken to market.
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43. The third such category as mentioned in sub-clause (b) to Section
2(1A) of the Act is confined to “income from sale” of the produce raised or
received by such “cultivator” or “receiver of rent-in-kind” in respect of which
the process is carried out by the above named persons to make the agricultural
produce marketable. It should be from the produce from land used for
“Agricultural Purpose”.
44. The activity carried out by the Respondent/Assessee does not answer
to any of the three situations contemplated in sub-clause (b) to Section 2(1A) of
the Act.
45. That apart, what is contemplated in the second and third situation as
mentioned above is performance of actions to render the agricultural produce
marketable and/or sale coupled with performance by a cultivator (other than the
land owner) or income received by the owner in the form of rent-in-kind from
the cultivator.
46. In the facts of the present case, the Respondent/Assessee has not
derived any income from such land. Rather, it has derived income from sale of
'Button Mushroom' grown in its factory under a controlled conditions.
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47. The “Button Mushroom” was not raised in land used for agricultural
purpose. It was cultured in a factory under controlled conditions. Therefore,
does not come within the purview of second category.
48. As far as the third specie of “Agricultural Income” contemplated in
sub-clause (c) to Section 2(1A) of the Act is concerned, it would cover the
situation where the income is received from any “building”, which is either
owned and/or occupied by the “receiver of the rent” or “receiver of the
revenue” of “any land”.
49. Sub-clause (c) to Section 2(1A) of the Act can be understood in the
following manner:-
Any income derived from any building owned and occupied by the
Receiver of the Receiver of Cultivator of any Receiver of
rent of any such revenue of any land rent in kind
land such land of any land
With respect to which, or the produce of which, any process mentioned in
paragraphs (ii) and (iii) of sub clause (b) is carried on:
(ii) the performance by a cultivator or (iii) the sale by a cultivator or
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Any income derived from any building owned and occupied by the
receiver of rent-in-kind of any process receiver of rent-in-kind of the
ordinarily employed by a cultivator or produce raised or received by him,
receiver of rent-in-kind to render the in respect of which no process has
produce raised or received by him fit been performed other than a process
to be taken to market. of the nature described in paragraph
(ii) of this sub-clause.
50. The first sub-category in sub-clause (c) to Section 2(1A) of the Act
would relate to income derived from “any building” either by the owner of the
building i.e., receiver of rent or from revenue from any such land. Such
buildings should be situated in the land meant for “Agricultural Purpose” to
qualify as income from agriculture.
51. Therefore, the first situation contemplated under sub-clause (c) to
Section 2(1A) of the Act is not satisfied to treat the income from sale of
“Button Mushroom” as Income from “Agriculture”. That apart, such income
from the building has to be from such activity mentioned in paragraphs (ii) and
(iii) of sub-clause (b) to Section 2(1A) of the Act.
52. As far as the second and third situation in sub-clause (c) to Section
2(1A) of the Act are concerned, it would relate to any income derived from any
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building of “any land”. The second situation will relate to buildings occupied
by the “cultivator”, while the third category would relate to buildings occupied
by the “receiver of rent-in-kind”.
53. Under both these circumstances also, the performance/sale
contemplated in sub-clause (ii) and (iii) to clause (b) to Section 2(1A) of the Act
has to be satisfied.
54. In this case, there are no indication that income from sale of ‘Button
Mushrooms’ would fall under any of the three situations that are contemplated
in sub-clause (c) to Section 2(1A) of the Act.
55. None of the situations specified above has been satisfied for the
Respondent/Assessee to claim the benefit of Section 10(1) of the Act i.e.,
“Agricultural Income”.
56. It would have been different, if mushrooms were grown by a farmer
and thereafter processed by the Respondent/Assessee for making it marketable,
in which case, the Respondent/Assessee could have claimed the income as
‘Assessable Income’ within the meaning of Section 2(1A)(c) of the Act.
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57. Therefore, income from sale of ‘Button Mushrooms’ from a factory
under a controlled condition will not come within the purview of the definition
of “Agricultural Income” within the meaning of Section 2(1A) of the Act for
the purpose of Section 10(1) of the Act.
58. Although the impugned decision of the Tribunal is inspired from the
decision of the Special Bench of the Tribunal in M/s.Inventaa Industries
Private Limited's case (cited supra) rendered on 09.07.2018, the Tribunal as
the final fact finding authority ought to have given a clear finding on facts with
reference to the definition of “Agricultural Income” in Section 2(1A) of the
Act and answered the issue one way or the other i.e., either in favour of the
Respondent/Assessee or in favour of the Appellant Income Tax Department,
correctness of which could have been tested before us.
59. In view of the above discussion, we are of the view that the decisions
of the Special Bench of the Appellate Tribunal in M/s.Inventaa Industries
Private Limited's case (cited supra) cannot be applied to the facts of the
present case. Therefore, these appeals of the Appellant/Income Tax Department
deserve to be allowed.
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60. Therefore, the Substantial Questions of Law framed are answered
against the Respondent/Assessee and in favour of the Appellant/Income Tax
Department.
61. In the result, these Tax Case Appeals stand allowed. No costs.
Connected Civil Miscellaneous Petition is closed.
[R.S.K., J.] [C.S.N., J.]
09.05.2025
Neutral Citation : Yes / No
nst / arb
To:
1.The Principal Commissioner of Income Tax-1,
Chennai.
2.The Income Tax Appellate Tribunal,
“C” Bench, Chennai.
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R.SURESH KUMAR, J.
and
C.SARAVANAN, J.
nst / arb
T.C.A.Nos.499 and 500 of 2023
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T.C.A.Nos.499 and 500 of 2023
09.05.2025
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