Agricultural income test for mushroom cultivation fails where controlled factory production does not satisfy statutory land-based requirements.

Income from sale of white button mushrooms grown in trays under controlled factory conditions was held not to be agricultural income under Section 2(1A) of the Income-tax Act. The provision was read strictly: income must arise from land used for agricultural purposes, from agricultural operations on such land, or from connected building receipts. The court found that controlled-environment mushroom cultivation did not satisfy these statutory categories, and the use of soil in trays did not amount to land used for agriculture on these facts. The receipts were therefore taxable as business income.

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Issues: Whether income from cultivation and sale of white button mushrooms grown in trays under controlled conditions constitutes agricultural income under the Income-tax Act, 1961.

Analysis: The definition of agricultural income in Section 2(1A) was examined in its three parts. Income must be derived from land used for agricultural purposes, or from such land by agriculture or ordinary agricultural processes, or from building-related receipts connected with such agricultural land. The Court held that the assessee's activity did not satisfy any of these statutory categories. The mushrooms were grown in a factory under controlled conditions and not from land used for agricultural purposes within the meaning of the provision. The earlier view treating soil placed in trays as land for this purpose was not accepted on the facts of this case. The Court also held that controlled-environment cultivation does not by itself convert a non-qualifying activity into agricultural income.

Conclusion: The income from sale of white button mushrooms was not agricultural income and was taxable as business income.

Ratio Decidendi: For Section 2(1A), income is agricultural only if it is derived from land used for agricultural purposes or falls strictly within the statutory categories of agricultural operations and connected receipts; cultivation in a controlled factory environment, without satisfaction of those statutory conditions, does not qualify.

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