2025 (3) TMI 220 - AT - Income Tax

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

Dy. Commissioner of Income Tax Circle–4, Nagpur Versus Sonu Monu Agro Pvt. Ltd.

The ITAT Nagpur held that mushroom cultivation constitutes agricultural activity and income derived from mushroom sales qualifies as agricultural income ... Classification as agricultural income - cultivation of mushroom falls within the purview of agriculture or not? - HELD THAT:- As decided in M/S. INVENTAA INDUSTRIES PRIVATE LIMITED [2018 (8) TMI 69 - ITAT HYDERABAD] held that “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”. Thus, consistent with the view taken therein, we decline to interfere with the order passed by the first appellate authority and dismiss the grounds raised by the Revenue. 1. ISSUES PRESENTED and CONSIDEREDThe primary legal issue considered in this case was whether the income derived from the cultivation of mushrooms by the assessee should be classified as agricultural income, which is exempt under Section 10(1) of the Income Tax Act, 1961, or as business income, which is taxable. This determination hinges on whether mushroom cultivation constitutes an agricultural activity under the Act.2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and Precedents:The Income Tax Act, 1961, under Section 10(1), exempts agricultural income from taxation. The definition of agricultural income and the conditions under which income can be classified as agricultural are crucial to this case. The court considered precedents, including the Supreme Court's interpretations in cases like CIT Vs. Raja Benoy Kumar Sahas Roy and CIT Vs. Kokine Dairy, which provide guidance on what constitutes agricultural income.Court's Interpretation and Reasoning:The Tribunal examined whether the cultivation of mushrooms involves basic agricultural operations and whether the income derived from such cultivation falls under the definition of agricultural income. The court analyzed the nature of mushroom cultivation, which involves growing mushrooms in controlled environments using compost and other materials, rather than traditional soil-based farming.Key Evidence and Findings:The assessee argued that mushroom cultivation is recognized as an agricultural activity by various government bodies, including the Agricultural and Processed Food Products Export Development Authority (APEDA) and the Indian Council of Agricultural Research (ICAR). The assessee also maintained separate books for mushroom farming and business activities, claiming expenses only against the revenue from mushroom farming.Application of Law to Facts:The Tribunal considered the decision of the Special Bench of the ITAT, Hyderabad, in DCIT v/s Inventaa Industries Pvt. Ltd., which held that mushroom cultivation is an agricultural activity because it involves basic operations performed on land with human skill and labor. The Tribunal found that the facts of the present case were similar to those in the Inventaa Industries case, supporting the classification of mushroom income as agricultural.Treatment of Competing Arguments:The Department argued that mushroom cultivation is a business activity, citing the use of factory buildings, controlled environments, and the absence of traditional land-based farming operations. The Department relied on the ITAT Chandigarh's decision in Chander Mohan Vs ITO. However, the Tribunal found the Hyderabad Special Bench decision more persuasive, as it directly addressed the agricultural nature of mushroom cultivation.Conclusions:The Tribunal concluded that the income from mushroom cultivation by the assessee qualifies as agricultural income, exempt under Section 10(1) of the Act. The Tribunal relied on the Special Bench decision, which provided a comprehensive analysis of the agricultural nature of mushroom cultivation.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:The Tribunal noted, '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 agricultural operation.'Core Principles Established:The Tribunal established that mushroom cultivation involves basic agricultural operations performed on land and, therefore, the income derived from such activities should be classified as agricultural income. The Tribunal emphasized the importance of human skill and labor in the cultivation process, aligning with the definition of agricultural income under the Act.Final Determinations on Each Issue:The Tribunal upheld the decision of the CIT(A), which classified the income from mushroom cultivation as agricultural income. The Tribunal dismissed the Department's appeal, affirming that the income is exempt under Section 10(1) of the Income Tax Act, 1961.In conclusion, the Tribunal's decision reinforces the classification of mushroom cultivation as an agricultural activity, exempting the income derived from such cultivation from taxation under the Income Tax Act. This decision aligns with the precedent set by the Special Bench of the ITAT, Hyderabad, and emphasizes the agricultural nature of mushroom farming despite the use of modern cultivation techniques.