TaxTMI 
TaxTMI 
2025 (5) TMI 1962
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....12.09.2022 of the Commissioner of Income Tax (Appeals), National Faceless Assessment Centre (NFAC) (hereinafter referred to as the 'Appellate Commissioner') passed for the Assessment Years 2017-2018 and Assessment Years 2018-2019. 4. Earlier, the Appellate Commissioner had accepted the contention of the Respondent/Assessee that the income generated by the Respondent/Assessee from cultivation of white 'Button Mushrooms' under controlled temprature was an "Agricultural Income" within the meaning of Section 2(1A) of the Income Tax Act, 1961 (hereinafter referred as the 'Act') and therefore, the Respondent/Assessee was not liable to pay tax under the provisions of the Act on the income from 'Buttom Mushrooms'. 5. At the time of admission of these Tax Case Appeals, the following questions of law were framed as the Substantial Questions of Law by this Court for being answered:- 1. Whether on the facts & in the circumstances of the case, the Tribunal was justified in holding that the income derived from cultivation and sale of "white button mushroom" are "agricultural income" exempt from Income tax especially when mushroom is neither a plant nor a fruit....
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....and health.Co.Litt 4a. The word "land" included not only the soil but everything attached to it, whether attached by the course of nature, as trees, herbage, and water, or by the hand of man, as buildings and fences. "land" is the solid material of the earth, whatever may be the ingredients which it is composed of whether soil, rock or other substance." "Soil" The word "soil" as per Random House Dictionary - The unabridged Edition to include "any place or condition providing the opportunity for growth or development" 12.11. "Soil" is the thin skin that covers the land. "Soil" is material in the top layer of the surface of the earth on which plants can grow and is a non-renewable resource. It takes ages for rocks to wither into soil and ric organic matter to build up. Land is a part of the earth, while soil refers to one part of the land. Land, as commonly understood means, the surface of the earth not covered by a body of water. Thus, the term land includes soil. In the definition referred above, "land" is defined in an inclusive manner. 12.12. The Ld. Standing Counsel relied on the principles of "Noscitur A Sociis' for interpretation the word 'Land'. She also....
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....product that raises from land itself, to be an agricultural product, the income from which is exempt from tax. If the question to be answered is whether land is used for production or not, then in our view strict interpretation cannot be applied. 12.14. The term 'Land' in our view has to be interpreted by using the principles of 'Purposive Interpretation'. The purposive approach (sometimes referred to as purposivism, purposive construction, purposive interpretation, or the modern principle in construction) is an approach to statutory and constitutional interpretation under which common law courts interpret an enactment (a statute, part of a statute, or a clause of a constitution) within the context of the law's purpose. Purposive interpretation is a derivation of mischief rule set in Heydon's Case, and intended to replace the mischief rule, the plain meaning rule and the golden rule. Purposive interpretation is used when the courts use extraneous materials from the pre-enactment phase of legislation, including early drafts, Hansard's committee reports, and white papers. The purposive interpretation involves a rejection of the exclusionary rule. Supreme Court in Ti....
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....n in our view, would be unintended and unfair. The only part of the land that is cultivable, and which is useful for agricultural activity is 'Soil' which is the top layer of land. Then whether such soil is attached to land or is placed in containers above the land should in our humble view, not make a difference. Though these strong arguments of the Ld. Standing Counsel appealed to us ab-initio on an analysis of the purpose for which the term is to be interpreted, we are unable to persuade ourselves to accept the same. If the term 'Agri' is 'field', then 'field' can be on land or on a 'terrace' or on a 'pot', 'tray' etc., In view of the above discussions, we hold that it is important to distinguish between the meaning of the term 'soil' from 'land', because the cultured top strata of the earth's surface, which is fit for arable cultivation, is actually what is required for agricultural purposes and this top layer (being 'soil') is one on which actual agricultural growth takes place. In contrast, the meaning attributed to land (primarily as an immovable object) is of a wide import. For the purpose of understanding the nexus between an agricultural operation and an agricultural ....
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....he land, which have some utility either for consumption or for trade or commerce, if they are based on land, would be agricultural products. Here, it is not the case of the revenue that without performing the basic operations, only the subsequent operations, as described in the decision of the Apex Court have been performed by the assessee. If the plants sold by the assessee in pots were the result of the basic operations on the land on expending human skill and labour thereon and it was only after the performance of the basic operations on the land, the resultant product grown or such part thereof as was suitable for being nurtured in a pot, was separated and placed in a pot and nurtured with water and by placing them in the greenhouse or in shade and after performing several operations, such as weeding, watering, manuring, etc., they were made ready for sale as plants all these operations would be agricultural operations and all this involves human skill and effort. Thus, the plants sold by the assessee in pots were the result of primary as well as subsequent operations comprehended within the term 'agriculture' and they are clearly the products of agriculture." 13.3. Thus, the....
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.... installed a proper drainage system. Certain operations such as mixing of soil and watering of plants through drainage are explained. Then the activity of pruning and bending of growing plants carried out to get best size of rose buds. It has also been explained that pest control is also required. Insecticides are sprinkled to save the plants from any disease. From the facts as emerged from the compilation filed we have gathered that within greenhouse the floriculture activity comprises of growing of rose by deploying hydroponics technique for the farming of best quality roses. It is stated that the assessee has deployed a budding technical plant. Further it was explained that root stocks were brought from the market and placed in the green house. The plantation and the generation of sapling was nothing but agricultural activity. The mother plant is otherwise reared on earth. For rearing of mother plant human labour is involved. The tilling of soil, watering and other primary agricultural activity is the basic requirement for the growing of the rose plants. Subsequently the saplings are planted on plastic trays, which were kept at the height 2-3 ft. placed on MS stand. It was expla....
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....c cultivation activity' and thereafter an agriculturist has to perform 'subsequent agriculture operation', namely tending of grown plants, pruning, cutting or shaping and finally harvesting of crop. We have to clarify, as held by few honourable courts as well, that the subsequent operations ought to be a continuation of basic Agriculture operation. The fundamental requirement is that it should remain connected with the basic agriculture operation." 13.5. We agree with this view of the Tribunal. The process followed in the case of Best Roses Biotech (P.) Ltd., (supra) in similar to the process followed by the assessee. 13.6. Hence, the view of the courts was that the income in question was agricultural income and the explanation only acknowledges this fact. We should not take a 'pedantic' view on this issue. The view of the legislature is more expansive and purposive than the view of the courts. 13.7. In view of the above discussion, we conclude that "soil", even when separated from land and placed in trays, pots, containers, terraces, compound walls etc., continues to be a specie of land and hence "land" for the sole purpose of determining whether activity performed on such l....
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....nt as far as it is produced by performing some basic operations on the soil. 14.4. In the case of CIT Vs. Raja Benoy Kumar Sahas Roy [(1957) 32 ITR 466], as already stated, it is laid down that the "product" should be "raised on the land" by "performing some operation on land by expenditure of human skill and labour" and that the "product" should be "of some utility for consumption, for trade and commerce". 14.5. The term "product" is defined as: (a) an article of substance i.e. manufactured or refined for sale. (b) A thing or person that is the result of an action or process. (c) A product in modern times is also defined as a item or thing which is offered for sale. A product can be a service or an item. It can be physical or in virtual or cyber form. 14.6. It is clear that 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 fr....
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....s would not cease to be an agricultural product. The degree of control is irrelevant in arriving at a conclusion on this issue. With the advancement of technology, every aspect of production is monitored and controlled, so as to obtain optimum use of the produce. This is true with the use of greenhouse technologies. 15.2. The ITAT Pune Bench in the case of Asst. CIT Vs. KF Bio Plants (P.) Ltd. [Pune Bench 'A', ITA No. 1110/PN/2011] held that the nature of agricultural income would not change merely because agricultural operation was carried out in a greenhouse under a controlled environment. The assessee in that case was engaged in the business of plant floriculture and tissue culture, and claimed exemption of income as being agricultural income under section 10(1) of the Act. The A.O. disallowed the exemption on the ground that basic operation was done in a greenhouse. The ITAT held that the involvement of a greenhouse and controlled environment would not change the nature of agricultural income. We endorse this view. 15.3. The ITAT Ahmedabad Bench 'A' decision in the case of DCIT Vs. Best Roses Biotech (P.) Ltd., [(2012) 17 Taxmann.com 56 (Ahd.)] has analyzed ....
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....so granted licence by the Fruit products Order, 1995 by the Ministry of Food Proceedings Industries, Government of India. * The Central Excise Department classified in chapter 7 that the Mushrooms are Edible Vegetables and did not levy any tax on the assessee. * The Ministry of Agriculture, Government of India categorized Mushroom cultivation as the agricultural operation. Various Universities in India and abroad also treated the Mushroom cultivation as an Agricultural Operations. 16.1. The Ld. Standing Counsel submits that, the view of various Government and Financial Institutions, should not influence the interpretation of a statute. She submits that the statute has to be interpreted based on the language used therein and not based on views of universities and other organisations. 16.2. Words of the statute, when not defined, have to be construed and understood in their popular sense and according to their ordinary meaning. No doubt, statute cannot be interpreted based on the views of different Governmental Authorities and Financial Institutions, as their purpose and intent would be different, from the purpose and intent of the enactment in question. But the manner in whi....
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....e President in the affirmative, in favour of the assessee. 18. Before parting, we place on record our appreciation for the excellent contribution of the Ld. Standing Counsel Ms.K.Mamata Choudary and the Ld. Counsels for the assessee Shri S.Rama Rao and Shri K.Gopal. 19. In the result, all the appeals of the revenue and cross-objections of the assessee are dismissed for all the four assessment years." 8. The learned Senior Standing Counsel for the Appellant/Income Tax Department would submit that the said decision of the Tribunal in the case of DCIT Vs. Inventaa Industries Private Limited, [2018] 65 ITR 625 (Hyd.) cannot be said to have attained finality as appeal in I.T.A.Nos.58, 70, 74 and 100 of 2019 have been preferred against the aforesaid decision of the Tribunal and are still pending before the Telangana High Court under Section 260-A of the Act. 9. Learned Senior Standing Counsel for the Appellant/Income Tax Department further drew attention to the clean copy of the Assessment Order dated 28.12.2019 passed for the Assessment Year 2017-2018 under Section 143(3) of the Act, which captures the screen-shots from the web portal of the Respondent/Assessee. It is submitted th....
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....r of Income Tax Vs. Rashtradoot (HUF), (2019) 412 ITR 0017 / (2019) 262 Taxman 0360 (SC) 14. On the other hand, the learned counsel for the Respondent/Assessee would submit that the process of cultivation of white 'Button Mushroom' is in a way of soil being mixed with clay, paddy straw, chicken manure, etc. and then, it is loaded in big trays and the spawn/seeds cultured from matured mushrooms, are placed in the prepared soil and this involves ruffling the soil, scratching the soil, watering the soil using fungicide/pesticide/bactericide, weeding, disease control, pruning, declustering, removing undesirable under growth, etc., and after the mushroom is harvested, it is kept in cold storage due to its nature and thereafter, dispatched for sale. 15. Therefore, the learned counsel for the Respondent/Assessee would submit that mushroom cultivation is an 'Agricultural Activity' and it requires expediture of 'human skill and labour' and the product mushroom has utility for consumption, trade and commerce and hence, would qualify as an 'Agricultural Product' and the sale of such product gives rise to agricultural income. 16. Learned counsel for the Respo....
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....- Trib.) (SB) 19. We have considered the arguments advanced by the learned Senior Standing Counsel for the Appellant and the learned counsel for the Respondent. 20. The facts as stated are not in dispute. The Respondent/Assessee was incorporated in the year 2017-2018 and had initially treated the income from the sale of white 'Button Mushroom' as "income from business" for the Assessment Year 2017-2018. A Return of the Income was also filed by the Respondent/Assessee to that effect on 05.11.2017 under Section 139(1) of the Act. 21. While computing the total income of any previous year, "Agricultural Income" of any person shall not be included under Section 10(1) of the Act. 22. However, on 31.10.2018, a revised Return of Income was filed by the Respondent/Assessee under Section 139(4) of the Act declaring a 'nil' income for the Assessment Year 2017-2018 from the sale of 'Button Mushroom'. This revised Return of Income was filed pursuant to the decision of the Special Bench of the Tribunal rendered on 09.07.2018 in M/s.Inventaa Industries Pvt. Ltd's case (cited supra). 23. For the Assessment Year 2018-2019, the Return of Income was filed on 28.09.201....
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....come" under Section 2(1A) of the Act. Therefore, we proceed to give our view in the light of the definition "Agricultural Income" in Section 2(1A) of the Act. 29. The scope of enquiry in these appeals are therefore confined to the definition of "Agricultural Income" under Section 2(1A) of the Act and its relevance to the facts of the case. For the sake of clarity, the definition of "agricultural income" under Section 2 (1A) of the Act is reproduced below:- "Agricultural Income" means- (a)any rent or revenue derived from land which is situated in India and is used for agricultural purposes (b)any income derived from such land by- i. agriculture; or ii. The performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market;or iii. The sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; (c) any income derived from any building owned and occupied by the receiver of....
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.... sub-clause (a) or sub-clause (b) shall not be agricultural income. Explanation 3.-For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. Explanation 4.-For the purposes of clause (ii) of the proviso to sub-clause (c), "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year." 30. There are three parts to the definition of "Agricultural Income" in Section 2(1A) of the Act. Sub-clause (a) and (b) to Section 2(1A) of the Act deal with "rent" or "revenue" derived from land or income derived from such land. 31. The common denominator in sub-clause (a) and (b) to Section 2(1A) of the Act is either "rent" or "revenue" derived from land or income derived from land used for 'Agricultural Purposes'. 32. Sub-clause (c) to Section 2(1A) of the Act deals with income from building situated on "such land" and/or "any land". Only these categories of income are "Agricultural Income" within the meaning of Section 2(1A) of the Act. 33. For the purpose of our discussion and for the sake of clar....
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....or "Agricultural Purposes". 37. The expression 'Agricultural Purpose' is not defined in the Act although the expression 'Charitable Purpose' has been speficically defined in Section 2(15) of the Act. We are not concerned with the definition of 'Charitable Purpose' in these cases. Therefore, we do not wish to expatiate on the same. 38. Suffice to state that the case of the Respondent/Assessee does not fall within the purview of Sub Clause (a) as the income is not from the use of the land. The facts of the case makes it clear that income of the Respondent/Assessee does not comes within the purview sub-clause (a) to Section 2(1A) of the Act as admittedly the income of the Respondent/Assessee is not from the "land" used for "Agricultural Purpose". 39. Sub-clause (b) to Section 2(1A) of the Act is another species of "Agricultural Income" from "such land". Use of the expression "such land" implies "Agricultural Land" used for "Agricultural Purpose". 40. The expression "Agricultural Land" is defined in Section 2(14)(iii) of the Act. During the period in dispute, the aforesaid definition read as under:- "2.(14) (iii) agricultural land in India, not being land situate- (a) in any ar....
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.... as mentioned in sub-clause (b) to Section 2(1A) of the Act is confined to "income from sale" of the produce raised or received by such "cultivator" or "receiver of rent-in-kind" in respect of which the process is carried out by the above named persons to make the agricultural produce marketable. It should be from the produce from land used for "Agricultural Purpose". 44. The activity carried out by the Respondent/Assessee does not answer to any of the three situations contemplated in sub-clause (b) to Section 2(1A) of the Act. 45. That apart, what is contemplated in the second and third situation as mentioned above is performance of actions to render the agricultural produce marketable and/or sale coupled with performance by a cultivator (other than the land owner) or income received by the owner in the form of rent-in-kind from the cultivator. 46. In the facts of the present case, the Respondent/Assessee has not derived any income from such land. Rather, it has derived income from sale of 'Button Mushroom' grown in its factory under a controlled conditions. 47. The "Button Mushroom" was not raised in land used for agricultural purpose. It was cultured in a factory und....