DCIT Vs. Inventaa Industries Private Limited (ITAT Hyderabad Special Bench)
Mushrooms are fungus which are produced from spawn and not plants or crops and hence not agriculture. They are grown in trays of prepared soil in climate controlled rooms for commercial.
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.
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.
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.
FULL TEXT OF THE ITAT JUDGMENT
The Hon’ble President ITAT, constituted this Special Bench to decide the following question and appeals vide order dt.25-07-2017
“Merely because instead of horizontal use on soil, vertical space is used, does the growth of mushrooms stand apart from agricultural operations?”
At the time of hearing, both the parties objected to the question framed. The Ld. Counsel for the assessee, Shri S. Rama Rao, submitted that the question, as framed, does not arise from the grounds raised by the revenue in these appeals. The Ld. Senior Standing Counsel, Ms. K.Mamata Choudary, submitted that the question does not reflect the grievance of the revenue, raised in its appeal. Both the parties requested the Bench to re-frame the question to be decided by the Special Bench and filed a combined memo in this regard suggesting a draft question. We are in agreement with the reframed question suggested by both the parties. This re-framed question was referred to the Hon’ble President, ITAT, who vide his order dt. 1 0th April, 2018, referred this re-framed question, to this Special Bench for disposal, along with the appeals as well as the cross objections for Assessment Years 2008-09, 2010-11, 2011-12 and 2012- 13:-
The question referred is as follows:
“Whether in the facts and circumstances of the case, the income from production and sale of Mushrooms can be termed as ‘agricultural income’ under the Income Tax Act, 1961?”
Facts in brief:
2. The assessee is a company engaged in the business of manufacture of bulk drugs. It also derives income from growing of “Edible white button mushrooms” ( Mushroom) under the name and style of ‘Premier Mushroom’. The assessee was treating the income from growing mushrooms as “income from agriculture” and hence exempt u/s. 10(1) of the Income Tax Act, 1961 [Act]. A survey operation u/s. 133A of the Act was conducted on 23rdSeptember, 2013, at the mushroom growing unit of the assessee-company located at Kallakal – Village, Toopran – Mandal, Medak – District, Telangana. The Ld.Assessing Officer (AO) records that the survey was conducted to verify the process of mushroom growing by the assessee-company. During the course of survey, statements were recorded from Mr. K. Jagadish, Vice President (Operations) and Mr. C. Rajesh, another Vice President of the company. During the course of scrutiny proceedings, in reply to the queries raised by the AO, the assessee made various submissions. The gist of the submissions as summarized by the Ld.AO are set out in para 8, page 9 of the assessment order, the extract of which is as under:
“8. The gist of the submissions of the assessee is as under:
