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Mushroom cultivation – whether agricultural activity resulting into exempt agricultural income? Issue is open before the honorable Supreme Court.

DEVKUMAR KOTHARI

Whether mushroom cultivation qualifies as exempt agricultural income under Sections 2(1A) and 10 of the Income Tax Act The article discusses a legal dispute pending before the Supreme Court on whether income from mushroom cultivation qualifies as exempt agricultural income under Section 2(1A)/Section 10 of the Income Tax Act. Tribunals have often held mushroom cultivation-including growth in trays or beds-to be agricultural, treating soil in containers as 'land' and the activity as basic agricultural operations. Several High Courts, however, have classified controlled, factory-like mushroom production as manufacturing or business income. Appeals and cross-appeals are pending, creating a split of authorities on the test for agricultural character in controlled-condition cultivation. (AI Summary)

Mushroom cultivation – whether agricultural activity resulting into exempt agricultural income? Issue is open before the honorable Supreme Court

Mushroom is definitely an agricultural produce and is substitute or supplementary of other agricultural produce which provide raw material in our kitchens and dining table for consumption as cooked and uncooked foods.

From reported judgments we find that majority of Tribunals have held activity of mushroom cultivation as agricultural activity and income derived from such cultivation as agricultural income.

Reversing order of ITAT, Chennai, Madras High Court has held such income as not agricultural income but income from manufacture and business income.

The appeal before the Supreme Court is pending.

An appeal of revenue is also pending before Telangana High Court on similar issue.

Extracts of some orders found in search with ‘agricultural income’ and ‘mushroom cultivation’ are compiled below with observations of author.

M/s. British Agro Products (India) Pvt. Ltd. Versus The Principal Commissioner of Income Tax-1 Chennai. - 2025 (9) TMI 530 - SC Order

AI TextQuick Glance (AI)Headnote

Income from controlled-condition white button mushroom cultivation not 'agricultural income' under Section 2(1A); Section 10(1) benefits denied
SC held that income from cultivation of white button mushrooms in a factory under controlled conditions does not qualify as 'agricultural income' under Section 2(1A), aligning with the HC view that the statutory situations for Section 10(1) benefit were not met.

The Court permitted service on the Central agency representing the Revenue and directed that there shall be no recovery from the petitioner pursuant to the impugned order.

Observation of author about this case:

The appeal before the Supreme Court is pending. The Supreme Court has stayed recovery of tax pursuant to the order of High Court.

Facts found by Tribunal are not challenged as perverse or unreasonable though correctness has been challenge.

The Tribunal followed judgment of SPECIAL Bench in case of Dy. Commissioner of Income Tax, Circle-2 (1), Hyderabad Versus M/s. Inventaa Industries Private Limited, (Earlier known as M/s. Inventaa Chemicals Limited) And Vice-Versa - 2018 (8) TMI 69 - ITAT HYDERABAD An appeal against that judgment is pending before Tellengna High Court. Question of law raised in that case are not know.

Tribunal has found activity as agricultural activity. The High Court has agreed that agricultural activity on soil can be carried even after detaching soil from land and placing in trays, pots, or beds etc. Therefore, fact found by Tribunal is not reasonable and cannot be said wrong and is not perverse.

The agriculture is always a business being an adventure in nature of commerce and trade involving risks of various kind. For this reason alone, agricultural income cannot be taxed as business income.

Author hopes that, if properly represented, the honorable Supreme Court will approve order of ITAT and reverse order of High Court.

The Principal Commissioner of Income Tax-1, Chennai Versus M/s. British Agro Products (India) Pvt. Ltd. - 2025 (5) TMI 1962 - MADRAS HIGH COURT
AI TextQuick Glance (AI)Headnote

Mushroom cultivation under controlled factory conditions not agricultural income under Section 2(1A) Income Tax Act
The HC held that income from cultivation of white button mushrooms under controlled temperature conditions does not qualify as 'agricultural income' under Section 2(1A) of the Income Tax Act. The court analyzed the three sub-clauses of Section 2(1A) and found that mushroom cultivation in factory-like controlled conditions fails to satisfy any of the specified criteria for agricultural income classification. The assessee's income did not derive from land used for agricultural purposes, nor did it fall under building-related agricultural income categories. The court distinguished this case from situations where mushrooms are grown by farmers and then processed, emphasizing that controlled factory cultivation cannot claim agricultural income exemption under Section 10(1). The revenue's appeals were allowed.

Deputy Commissioner of Income Tax, Corporate Circle -1 (1), Chennai Versus M/s. British Agro Products (India) Pvt. Ltd. - 2023 (4) TMI 570 - ITAT CHENNAI

Income from production and sale of mushrooms - 'agricultural income' or not?

- Scope of definition of agricultural income u/s 2(1A) of the Income Tax Act, 1961 - HELD THAT:- As following the decision of ITAT, Special Bench in the case of Dy. Commissioner of Income Tax, Circle-2 (1), Hyderabad Versus M/s. Inventaa Industries Private Limited, (Earlier known as M/s. Inventaa Chemicals Limited) And Vice-Versa - 2018 (8) TMI 69 - ITAT HYDERABAD we are of the considered view that cultivation and sale of white button mushroom is an agricultural activity and income derived from said activity comes under the head agricultural income, which is exempt from tax.

CIT(A), after considering relevant facts has rightly deleted additions made by the AO towards income derived from cultivation and sale of white button mushroom and thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue.

No.- ITA Nos. 969 & 970/Chny/2022

Dated:- April 5, 2023

Citations:

Dy. Commissioner of Income Tax Circle–4, Nagpur Versus Sonu Monu Agro Pvt. Ltd. - 2025 (3) TMI 220 - ITAT NAGPUR
AI TextQuick Glance (AI)Headnote

Mushroom cultivation qualifies as agricultural activity with income exempt under Section 10(1) of Income Tax Act

The ITAT Nagpur held that mushroom cultivation constitutes agricultural activity and income derived from mushroom sales qualifies as agricultural income exempt under Section 10(1) of the Income Tax Act. The tribunal relied on precedent from ITAT Hyderabad, reasoning that mushroom cultivation involves basic agricultural operations requiring human skill and labor on land to produce consumable products. The tribunal dismissed the Revenue's appeal and upheld the first appellate authority's order recognizing the exemption for agricultural income from mushroom cultivation activities.

Fresh Bowl Horticulture Pvt. Ltd. Versus Income Tax Officer Mumbai - 2024 (11) TMI 564 - ITAT MUMBAI

AI TextQuick Glance (AI)Headnote

Mushroom cultivation and sale income qualifies as agricultural income exempt under section 10(1), not business income

ITAT Mumbai held that income from cultivation and sale of white button mushrooms constitutes agricultural income exempt under section 10(1) of the Income Tax Act, not business income. Following the precedent in Inventaa Industries case with identical facts, the tribunal allowed the assessee's claim treating mushroom cultivation as agricultural activity. The assessee's grounds were accepted, confirming the exemption from taxation under agricultural income provisions.

Hariom Biotech Agri Farming Versus Dy. Commissioner of Income Tax Central Processing Centre, Bengaluru - 2024 (8) TMI 927 - ITAT NAGPUR
AI TextQuick Glance (AI)Headnote

Assessee's agricultural income exemption claim rejected for failing to report in Schedule EI under section 154

ITAT Nagpur dismissed the assessee's appeal challenging CPC's addition under section 154. The assessee claimed agricultural income exemption of Rs. 1,15,69,580 but failed to report it in Schedule EI of the return. CPC correctly processed the return under section 143(1)(a)(ii) and made adjustment due to inconsistent claim. The assessee did not respond to proposed adjustment within 30 days nor filed revised return under section 139(5).

ITAT held rectification under section 154 has narrow scope, and since assessee conceded the mistake before CIT(A), no arguable case remained. Appeal dismissed.

Observations of author:

This case relates to lack of proper claim and disclosure in ITR and proper contest and steps by assessee and limited scope of proceedings which took place. This is not at all on aspect of ‘agriculture’ and ‘agricultural income’. If assesse has initiated further proceedings, he may win the claim if properly pursued.

Himalaya International ltd. Versus Pr. CIT-4, New Delhi - 2018 (7) TMI 1720 - ITAT DELHI

AI TextQuick Glance (AI)Headnote

ITAT classifies mushroom income as agricultural; directs verification of income amount. Decision on 26th July 2018.
The ITAT partially allowed the appeal, ruling that income from growing mushrooms should be considered agricultural income. However, the ITAT upheld the CIT's direction to verify the quantum of income from growing mushrooms. The decision was pronounced on 26th July 2018.

Dy. Commissioner of Income Tax, Circle-2 (1), Hyderabad Versus M/s. Inventaa Industries Private Limited, (Earlier known as M/s. Inventaa Chemicals Limited) And Vice-Versa - 2018 (8) TMI 69 - ITAT HYDERABAD

AI TextQuick Glance (AI)Headnote

Mushroom Cultivation Income Deemed Agricultural by Tribunal, Reopening Assessments Valid

The Tribunal held that income from mushroom cultivation qualifies as agricultural income under Section 10(1) of the Income Tax Act, 1961. The Tribunal affirmed the CIT(A)'s decision, emphasizing that soil in trays remains land for agricultural purposes, and basic agricultural operations on this soil support the classification of mushroom cultivation as agricultural. The Tribunal also validated the reopening of assessments for the relevant years and dismissed the non-grant of depreciation issue. The revenue's appeals and the assessee's cross-objections were rejected for all assessment years.

M/s. Oleander Farms Pvt. Ltd. Versus DCIT, CC-47, Mumbai - 2017 (7) TMI 173 - ITAT CHENNAI

AI TextQuick Glance (AI)Headnote

Tribunal Invalidates Additions Under Section 153C, Directs Acceptance of Declared Agricultural Income

The Tribunal allowed the appeal of the assessee, ruling that additions under Section 153C were unjustified without incriminating material. It invalidated proceedings under Section 153C due to the absence of recorded satisfaction before file transfer. The Tribunal directed acceptance of declared agricultural income and found no merit in additions under Sections 68 and 41.

Observations of author: Though the appeal was allowed on technical issues, however, nature of ‘agricultural income’ was also in focus.

CHANDER MOHAN Versus ITO. WARD 4 YAMUNANAGAR - 2014 (12) TMI 799 - ITAT CHANDIGARH

AI TextQuick Glance (AI)Headnote

Mushroom Farming Income Not Agricultural: Taxable under Income Tax Act
The Tribunal held that income from growing mushrooms did not qualify as agricultural income under Section 2(1A) of the The Assessing Officer's decision to treat the income as non-agricultural and taxable was upheld, and the appeals

of the assessee were dismissed.

Observations of author:

In this case some irrelevant aspects seems to have been emphasized by Tribunal in deciding that the cultivation of mushroom did not involve ‘agriculture’ and it was business. Tribunal also failed to understand that ‘agriculture’ it self is a business being adventure in nature of commerce involving various risks including natural risks affecting crop and its price in market. Therefore, an activity can be business in nature of agriculture.

Furthermore, use of soil in trays or pots or in concrete slabs and rows also constitute use of land and agriculture is carried in an extended manner. For these and other reasons judgment of the Chandigarh Bench in this case has been referred but not followed in many other cases. Reported after this case as listed earlier in this write-up.

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Mushroom cultivation – whether agricultural activity resulting into exempt agricultural income? Issue is open before the honorable Supreme Court.