Controlled mushroom cultivation is not agricultural income where no land-based farming operations are carried out.

Income from mushroom cultivation in residential premises under controlled conditions was treated as taxable business income, not agricultural income exempt under section 2(1A) of the Income-tax Act. Agricultural income requires land used for agricultural purposes and basic operations such as tilling, sowing, planting or allied cultivation, followed by connected subsequent operations. Because the mushrooms were grown within municipal limits without any cultivation of land, the activity did not satisfy the statutory test. A State notification could not control interpretation of the Central Act, and the CBDT circular also supported exclusion of controlled-condition mushroom growing from agricultural income.

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Issues: Whether income derived from growing mushrooms in residential premises under controlled conditions constituted agricultural income exempt under section 2(1A) of the Income-tax Act, 1961, and whether the assessee could rely on the State notification to claim such exemption.

Analysis: Agricultural income under section 2(1A) requires income derived from land used for agricultural purposes, involving basic operations on land such as tilling, sowing, planting and allied cultivation activities, along with subsequent operations in continuation of those basic operations. Mushroom cultivation in the present case was carried on in a residential area within municipal limits, without any tilling, planting or cultivation of land, and the activity was conducted under controlled conditions. The State notification declaring certain edible mushrooms as an agricultural activity could not govern the interpretation of the Central Income-tax Act. The CBDT circular also supported the view that mushroom growing under controlled conditions is not agricultural income.

Conclusion: The income from mushroom growing was not agricultural income and was taxable.

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