Mushroom Cultivation Income under Controlled Conditions not Agricultural Income

The Madras High Court recently overturned the Income Tax Appellate Tribunal’s (ITAT) Chennai’s decision in favour of British Agro Products (India) Pvt. Ltd. The court ruled that income derived from the cultivation of white button mushrooms under controlled conditions does not qualify as “agricultural income” under Section 2(1A) of the Income Tax Act, 1961.

Background

British Agro Products (India) Pvt. Ltd., a Chennai-based company, was incorporated in 2017 and began cultivating white button mushrooms for commercial purposes. For the assessment year 2017-18, the company initially filed its return under Section 139(1) of the Act, declaring the income from mushroom sales as business income and claiming depreciation on plant and machinery. However, following the ITAT Special Bench decision in DCIT vs. Inventaa Industries Pvt. Ltd. (2018), the company filed a revised return, declaring nil income and claiming the mushroom cultivation income as agricultural, thus exempt under Section 10(1) of the Act. For the assessment year 2018-19, the company filed its return on September 28, 2019, declaring a total income of Rs. 72,19,468 from other products while claiming Rs. 11,44,54,027 as agricultural income from mushroom sales.

The AO selected these returns for limited scrutiny under the CASS system and rejected the agricultural income claim, treating the mushroom income as business income and taxing it accordingly. The company appealed to the Commissioner of Income Tax (Appeals) which allowed the appeals, relying on the Inventaa Industries precedent. The ITAT upheld this decision and therefore the revenue filed an appeal before Madras High Court under Section 260A of the Act.