TaxTMI 
TaxTMI 
2025 (5) TMI 1962
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....ome Tax Department as against two Orders dated 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 t....
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.... In the most general sense, "comprehends any ground, soil or earth whatsoever; as meadows, pastures, woods, moors, waters, marshes, furzes 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"....
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....Act. But in the case on hand, the context and purpose for which the term 'Land' has been used by the legislature has to be understood. Use of land and performing activity on land itself, is the requirement specified for a natural 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 court....
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....lf. 12.16. If the strict interpretation, as argued by the Ld. Standing Counsel is accepted then, when 'Soil' attached to earth is cultivated, it is agricultural activity and when 'Soil' is cultivated after detaching the same from earth, it is not agricultural activity. Such an interpretation 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 agricultu....
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....nt was brought into the statute to nullify certain judicial pronouncements is factually incorrect. The courts have decided that income from nursery is agricultural income. 13.2. The Hon'ble High Court of Madras in Commissioner of Income-tax v. Soundarya Nursery, (2000) 241 ITR 530 (Madras), in which the court observed as under: "8. All the products of the 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, wateri....
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....vity in question : The company had developed a greenhouse for the establishment of a floriculture project. The company had grown good quality of rose flowers and also exported them abroad. It was explained that for the plantation of roses a very well treated soil is required. The quality of the soil is therefore tested. Manures are mixed for preparing a base for growing the rose plants. The company has 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 ....
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....y of roses, and (v) pest and diseases control for providing protection to roses. Therefore we hold that the activity which is connected with the land cultivation, such as ploughing of field, leveling of field, sowing of seed in the ploughed and leveled field, growing of plants, as case the may be, plantation, manuring, watering, weeding-out of weeds, so and so forth. These agriculture operations are said to be 'basic 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 fa....
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....; Fungi, Division. Basidiomycota" (Wikipedia). 14.2. On a careful consideration of the material on record, we conclude that mushroom, is not a 'vegetable' 'plant' or an 'animal' but a 'fungus'. 14.3. The contention of the assessee is that, what is produced by performing basic operations on the soil, is an agricultural product, even though the product is not a 'plant' or the 'flower' or a 'vegetable' or a 'fruit'. It was emphasized that the nature of the product is irrelevant 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 produc....
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....to be used, the nature of agricultural operations to be undertaken, material required to be used to enrich the soil, the timing of sowing, transplanting, harvesting etc., the quantity and quality of inputs such as water, fertilizer, pesticides etc. to be used and the timing at which they have to be used, are all controls that a farmer exercises in every type of agricultural activity. There can be no agriculture without controlling the conditions of production by human intervention. Just because the degree of control of the conditions are greater in some cases, as compared to others, the product produced out of such process 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 ....
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.... * NABARD conducted survey and observed that mushrooms are fruiting bodies of some members of lower group oup of plants. They are fleshy spore bearing structures containing numerous spores which are functionally similar to seeds of higher plants. They are used in reproduction of mushrooms. After conducting the studies, the NABARD certified Mushroom cultivation as an agricultural operation and kept the same under "agricultural" segment. * That for the purpose of commencement of production activity, the assessee requires a certification from the Ministry of Commerce and Industry, Govt. of India: The said Ministry also categorized activity as "other agricultural industry". The assessee is also 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 Op....
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....and the fact that the process of growth was not properly explained. As the division Bench has not agreed with this view of the Pune Bench of the ITAT, this issue was referred to this larger Bench. 16.6. 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. 16.7. Thus we uphold the order of the Ld. CIT(A) on this issue. 17. In view of the above discussion, we answer the question referred to us by the Hon'ble 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." ....
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....ict sense of scientific classification and processing them on trays and was grown by making use of the field. There was no tillage of land and hence, the income earned by the Respondent/Assessee would fall under the head 'income from business' only. 13. Learned Senior Standing Counsel for the Appellant/Income Tax Department has relied on the following decisions:- i. State of Kerala Vs. Karim Pharuvi Tea Estates Ltd., (1966) 60 ITR 0275 ii. C.Hanumantha Rao (decd) and another Vs. CIT, (2011) 335 ITR 00117 iii. Blue Mountain Food Products Ltd., Vs. ITO, (1985) 14 ITD 254 (Bang.) iv. Chandermohan Vs. ITO, Ward-4, Yamuna Nagar, [(2014)] 52 Taxmann.Com 203 (Chandigarh - Trib) v. Mayuri Yeast India Private Limited Vs. State of UP and another, (2008) 5 SCC 680 vi. Commissioner 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 ....
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.... iv. Blue Mountain Food Products Limited Vs. Income- Tax Officer, [1985] 14 ITD 254 (Bang.) v. Commissioner of Income-tax Vs. Soundarya Nursery, [2002] 123 Taxman 372 (Madras) vi. Assistant Commissioner of Income-tax, Circle 2, Pune Vs. Malhotra Mukesh Satpal, [2008] 115 ITD 467 (Pune) vii. Commissioner of Income-tax, Meerut Vs. Green Gold Tree Farmers (P.) Ltd., [2008] 167 Taxman 151 (Uttarakhand) viii. Commissioner of Income-tax Vs. Jagish Ram Krishan Chand, [2008] 304 ITR 45 (Himachal Pradesh) ix. Deputy Commissioner of Income-tax, Navsari Circle Vs. Best Roses Biotech (P.) Ltd., [2012] 17 taxmann.com 56 (Ahd.) x. Chander Mohan Vs. Income-tax Officer, Ward-4, Yamunanagar, [2014] 52 taxmann.com 203 (Chandigarh - Trib.) xi. Deputy Commissioner of Income-tax, Circle-2(1), Hyderabad Vs. Inventaa Industries (P.) Ltd., [2018] 95 taxmann.com 162 (Hyderabad - 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-....
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....he Act and thus exempt from tax liability under Section 10(1) of the Act. 26. Further, Appeals filed by the Appellant/Income Tax Department were also dismissed by the Income Tax Appellate Tribunal (ITAT) following the decision of the Special Bench of the Income Tax Appellate Tribunal (ITAT) in M/s.Inventaa Industries Pvt. Ltd's case (cited supra). 27. The issue which was answered by the Special Bench of the Tribunal in M/s.Inventaa Industries Pvt. Ltd's case (cited supra) which was relied by the Appellate Tribunal are presently subject matter of appeal before the Telangana High Court under Section 260-A of the Act in I.T.A.Nos.58, 70, 74 and 100 of 2019. 28. Though the Special Bench of the Income Tax Appellate Tribunal (ITAT) in M/s.Inventaa Industries Pvt. Ltd's case (cited supra) has given a detailed order, we are afraid that it has not examined the issue from the point of view of the definition of "Agricultural Income" 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 "....
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....xceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh. Explanation 1.-For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section. Explanation 2.-For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income. Explanation 3.-For the purposes of this clause, any income derived from ....
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....cess mentioned in paragraphs (ii)and (iii) of sub-clause (b) are/were carried on. 34. We make it clear that what is contemplated in sub-clause (a) and (b) to Section 2(1A) of the Act is income from the use of land for "Agricultural Purpose" which is used for any of the three mentioned categories in sub-clause (b) to Section 2(1A) of the Act. 35. There is a subtle difference between the income contemplated in subclause (a) and (b) to Section 2(1A) of the Act. Sub-clause (a) to Section 2(1A) of the Act would cover with any income from "rent" or "revenue" derived from land which is/are used for "Agricultural Purpose". The bottom line is such land should be situated in India and such land is used for "Agricultural Purposes". 36. Although not illustrated, sub-clause (a) to Section 2(1A) of the Act could cover the situation where there is a tenancy of land used for "Agricultural Purposes" or where direct revenue is derived from the land used for "Agricultural Purposes". Sine qua non for that Income to qualify as an "Agricultural Income" is that such income should be derived from land used for "Agricultural Purposes". 37. The expression 'Agricultural Purpose' is not defined in....
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.... derived from "such land" as "Agricultural Income", if such income is derived, by:- (i) (ii) (iii) Agriculture; or the performance of any process ordinarily employed:- the sale 1. by a cultivator of the produce raised; or 1.by a cultivator of the produce raised; or 2. receiver of rent-in-kind received, 2. receiver of rent-in-kind received, to render such produce raised or received fit to be taken to market. in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause. 42. The first situation that is contemplated in sub-clause (b)(i) to Section 2(1A) of the Act is relatable to direct income from "Agriculture" simpliciter from "such land". The second situation that is contemplated in sub-clause (b)(ii) to Section 2(1A) of the Act is relatable again to "Agricultural Income" from "such land" where there is performance of any process ordinarily employed either by:- 1. a "cultivator" to render the produce raised fit to be taken to the market; or 2. By "receiver of rent-in-kind" to render the produce received fit to be taken to market. 43. The third ....
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...., in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause. 50. The first sub-category in sub-clause (c) to Section 2(1A) of the Act would relate to income derived from "any building" either by the owner of the building i.e., receiver of rent or from revenue from any such land. Such buildings should be situated in the land meant for "Agricultural Purpose" to qualify as income from agriculture. 51. Therefore, the first situation contemplated under sub-clause (c) to Section 2(1A) of the Act is not satisfied to treat the income from sale of "Button Mushroom" as Income from "Agriculture". That apart, such income from the building has to be from such activity mentioned in paragraphs (ii) and (iii) of sub-clause (b) to Section 2(1A) of the Act. 52. As far as the second and third situation in sub-clause (c) to Section 2(1A) of the Act are concerned, it would relate to any income derived from any building of "any land". The second situation will relate to buildings occupied by the "cultivator", while the third category would relate to buildings occupied by the "receiver of rent-in-kind". 53. Under both t....