Income from growing mushroom is non agricultural income

IN THE ITAT CHANDIGARH BENCH ‘A’

Chander Mohan

v.

Income-tax Officer, Ward-4, Yamunanagar

IT APPEAL NOS. 377 & 389 (CHD.) OF 2012
[ASSESSMENT YEARS 2003-04 & 2004-05]

OCTOBER  28, 2014

Chander Mohan for the Appellant. J.S. Nagar for the Respondent.

ORDER

T.R. Sood, Accountant Member – These appeals are directed against the order of the ld CIT(A), Karnal dated 2.2.2012.

2. In ITA No. 389/Chd/2012, Assessment year 2003-04 the assessee has raised the following ground:

“Worthy CIT(A) has erred in confirming the addition made by the Assessing officer at Rs. 205,120/- treating this income from growing of sale of mushroom and not income from agriculture and treated the agricultural income to be income from other sources.”

3. In ITA No. 377/Chd/2012, Assessment year 2004-05 the assessee has raised the following ground:

“Worthy CIT(A) has erred in confirming the addition made by the Assessing officer at Rs. 295,440/- treating this income from growing of sale of mushroom and not income from agriculture and treated the agricultural income to be income from other sources.”

4. After hearing both the parties we find that the assessee had filed return declaring net taxable income at nil. In Assessment year 2003-04 in the computation of income the assessee had shown income of Rs. 205, 120/- from growing of Mashroom which was claimed as agricultural income and was therefore exempt from tax.

5. It seems the appeal of the assessee was dismissed by the ld. CIT(A), Panchkula and the assessee preferred an appeal before the Tribunal. The Tribunal remanded the issue back to the file of Assessing officer in ITA No. 310/Chd/2008 and relevant para of the order has been extracted by the Assessing officer in Assessment year 2004-05 which is as under:

“I have found force in this argument of eh assessee but still to be fair to both the sides, specially when all the details were not furnished during assessment proceedings, it will be fair if the Assessing officer is directed to examine the details of any furnished by the assessee and thhen to take decision in accordance with law. Needless to mention here that due opportunity be provided to the assessee. Consequently all these grounds of the assessee are sent to the file of Assessing officer for fresh adjudication, therefore this appeal of the assessee is allowed for statistical purposes only.”

In view of above fresh notice u/s 143(2) was issued. In response the assessee appeared along with Chartered Accountant and filed following reply:

“The basic material for growing the mushroom includes soil (mitti), wheat straw, husk, gypsum, urea, super potash and can (kissan khad) and molasses, rice husk, sand, gobar, see (wheat) and manual labour. We sow seed in the mixed material and that is kept in polythene bags in the shape of bed also. Then we spray water on all the polythene bags in the shape of bed also. Then we spray water on all the polythene bags. On those bags, we put raakh, mitti and desikhad (made from gobar) which we prepare ourselves. After about 15 days mushroom comes out and after cutting and washing, we sell it fresh in the market.

For growing the mushrooms, he has to look after weeding, removing pests, insects etc. tending, pruning harvesting and rendering the produce to make it marketable. We grow mushrooms from November to February only in natural climatic conditions and no electrical appliances used. The mushroom is an agricultural income and for that your kind attention is drawn towards earlier results accepted by the predecessor officers available at pages 8 to 18 of the paperbook. The particular of declared and accepted agricultural income are as under:

Certificate of Additional Secretary to Government of India available at page 6 and that Director of Horticulture, Haryana available at page 7, further substantiate the above facts., In these facts there ought not be doubt to treat the income from growing and sale from mushrooms as agriculture.

Your kind attention is invited to the law laid down by the Supreme Court reported in 32 ITR 466 and Hon’ble Andhra Pradesh High Court reported in 42 ITR 83 and to the judgment of Hon’ble Madras High Court reported in 24 ITR 531. The Hon’ble Madras High Court have held as under:

All the products of the land which have some utility either for some consumption or for trade or commerce if they are based on land, would be agricultural products. If the plant sold in pots were the result of basic operations on the land expending human skill and labour thereon and if after performance of the basic operations on land the resultant product grown or such part thereof was suitable for being nurtured in a pot with water or by placing them in the greenhouse or in shade or after performing several operations such as weeding, watering, manuring etc. and are made ready for sale, all these operations are agricultural operation and the plants are product of agriculture.

The assessee was carrying on business of a nursery and various types of fruit plants, flower plants, vegetable plants and seedlings on scientific basis, grow plants on prepared beds and after several operations carried out on the land viz. cutting , gootying and inarching they were transplanted in suitable container including pots and kept in the greenhouse in shade and then sold. The assessee claimed that the income derived from the sale of plants in pots.”

Further reliance was placed on certain judgments. The Assessing Officer observed that the cases relied on by the assessee are on different facts. He observed that for growing of mushrooms, wooden casing filled with compost is stacked in the rooms under controlled temperature. The activity performed by the assessee is no way in the nature of cultivation and hence not covered within the definition of ‘agriculture’.

6. The Assessing Officer also referred to Circular No. 258, dated 14-6-1979 issued by CBDT in which income from mashrooms growing was directed not to be treated as agricultural income. Relevant paragraph has been extracted by the Assessing officer in his assessment order and reads as under:

“U/s 10(1) of IT Act agricultural income is exempt from income-tax Act. For this purpose, agricultural income includes any income derived from land situated in India and used for agricultural purposes. Mushrooms are generally grown in a closed chamber and not necessarily in an open field. Is raw material is a composite made of wheat straw, poultry manure calcium carbonate, gypsum and other fertilisers. Different layers of artificial soil are prepared in wooden trays and temperature is controlled to a specified degree by closing the inlets and outlets of air to provide the necessary humidity for cultivation of mushrooms. This process is known as mushroom growing under controlled conditions cannot be regarded as agricultural income and is, therefore chargeable to income tax.”

The Assessing officer also observed that circular was issued while dealing with the scope of Sec 80- JJA of IT Act which has already been omitted but throws light with regard to definition of agricultural income. In this background the Assessing Officer held that the income from growing of mushrooms was not agricultural income and was held to be taxable income.

7. The ld. CIT(A) after elaborate discussion observed that the assessee had admittedly grown mushrooms in residential area within the MC limits. Therefore the income cannot be held to be agricultural income in view of the provisions of section 2(1A) of IT Act, 1961. The ld. CIT(A) also referred to the decision of Supreme Court in case of CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 and held that the income from mushrooms was not agricultural income.

8. Before us the assessee appeared in person and submitted that Govt of Himachal Pradesh has issued a Notification through which a cultivation of mushrooms was declared to be agriculture activity. Therefore in view of this the income of assessee should be treated as agricultural income. He further submitted that he has sought information from Government of India, Ministry of Finance, CBDT about clarification of levy of income tax on seasonal mushroom farms but no information has been provided stating that such information is not available and therefore case should be kept pending.

9. On the other hand, the ld. DR for the revenue strongly supported the order of Assessing Officer and the ld. CIT(A).

10. We have considered the rival submissions carefully. As far as information from the Ministry of Finance, CBDT is concerned, relevant letter reads as under:

“F. No. 173/148/2014-ITA-I

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

(IT A-I Division)

New Delhi, the Oct, 2014

To

Shri Chander Mohan Luthra

Classic Mushroom Farm

Near Chitta Mandir

Yamunanagar

Haryana – 135001

Sub: Information sought under Right to Information Act, 2005

Sir,

I am directed to refer to your RTI application dated 5.8.2014 received in this office on 16.9.2014 on the above-mentioned subject.

2 With respect to query raised in your RTI application, it may be noted that the said information is not available in this office.

3 If you are not satisfied with the reply, you may file an appeal with the first appellate authority i.e. Deputy Secretary (ITAI), Central Board of Direct Taxes, Department of Revenue, North Block, New Delhi – 110011 within 30 days of receipt of this letter.

4. Hindi version to follow.

Yours faithfully,

Sd/-

(Shailendra Kumar)

CPIO-DCIT-OSD (ITA-I)”

The above reply from CBDT clearly shows that they have no information which means the Govt has not issued any Circular or Notification in respect of income from the mushrooms. Merely because the Govt has no information, is not a reason for keeping a particular case pending and therefore we find no force in this contention.

11. Notification issued by the Govt of Himachal Pradesh reads as under:

Government of Himachal Pradesh

Department of Agriculture

No. Agr.B-F(10)4/2013

Dated: 8th Nov 2013

Notification

The Governor of Himachal Pradesh is pleased to declare the of white butter mushroom (Dhingri) milky mushroom, oyster mushroom and any other edible mushroom whether cultivated or growing naturally as an agricultural activity with immediate effect.

By Order

Additional Chief Secretary (Agriculture) to the Government of Himachal Pradesh ”

Reading of above Notification clearly shows that same pertains to butter mushrooms (Dhingri), Milky mushroom, oyster mushroom and any other edible mushroom. In our opinion, these are different products than from normal mushrooms. In any case Govt of Himachal Pradesh has no authority to issue Notification in respect of central legislation i.e. income tax which is a central subject. Constitution of India has divided the areas of functioning of Central and State Governments by putting various subjects in different lists. List one of the Constitution of India contains the subject of income tax and therefore subject of income tax would remain in exclusive domain of Government of India and State Government cannot enact any laws on this subject and that is why we have only one Income-tax Act, 1961 which is applicable to whole of India. We are not dealing in detail with these issues because they are not relevant. Govt of Himachal Pradesh might have issued a Notification for the some other purposes which is not relevant for issue before us.

12. Agricultural income has been defined in Sec 2(1A) and that section reads as under:

“(1A) “agricultural income” means-

Provided that-

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 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;.”

Therefore in simple terms agricultural income would involve any rent or revenue derived from such land or income from agriculture on such agricultural land. The meaning of agriculture was discussed in detail in the celebrated decision of Supreme Court in case of Raja Benoy Kumar Sahas Roy (supra). In this case it was observed as under:

‘”Agriculture” in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term, meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself.

Those operations which the agriculturist has to resort to and which are absolutely necessary for the purpose of effectively raising produce from the land, operations which are to be performed after the produce sprouts from the land e.g. weeding, digging the soil around the growth, removal of undesirable undergrowth, and all operations which foster the growth and preservation of the same not only from insects and pests but also from depredation from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market would all be agricultural operations when taken in conjunction with the basic operations. The human labour and skill spent in the performance of these subsequent operations cannot be said to have been spent on the land itself.

The mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations, would not be enough to characterise them as agricultural operations these subsequent operations must necessarily be in conjunction with and in continuation of the basic operations which are the effective cause of the products being raised from the land. The subsequent operations divorced from the basic operations cannot constitute by themselves agricultural operations.

Only if this integrated activity which constitutes agriculture is undertaken and performed in regard to any land can that land be said to have been used for ‘agricultural purposes” and the income derived therefrom be said to be “agricultural income” derived from the land by agriculture, u/s 2(I) of the Indian Income-tax Act, 1922.

Agriculture comprise within its scope the basic as well as the subsequent operations described above regardless of the nature of the products raised on the land. These products may be grain or vegetable or fruits which are necessary for the sustenance of human beings, including plantations and groves, or grass or pasture for the consumption of beasts or articles of luxury, such as betel, coffee, tea, spices, tobacco or commercial crops like cotton, flax, jute, hemp, indigo. All these are products raised from the land but the term agriculture cannot be confined merely to the production of grain and food products for human beings and beasts; it must be understood as comprising all the products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such as timber and sal and piyasal trees, casuarinas plantations, tendu leaves and horra nuts.

There is no warrant at all for extending the term “agriculture” to all activities which have some relation to the land or are in anyway connected with the land for the term agriculture cannot be dissociated from the primary significance thereof which is that of cultivation of the land. The extension of the term “agriculture” to denote such activities as breeding and rearing livestock, dairy farming, butter and cheese making, and poultry farming, is an unwarranted distortion of the term.”‘

The above clearly shows that agriculture can be performed only on land and which involve basic operations like tilling of land, sowing of the seeds, planting and similar operations on the land. In case before us no tilling or planting has been done. Admittedly there is no land on which tilling operations etc. is carried out. As stated by the Assessing Officer the entire activity is carried on as a business in residential area and mushrooms are grown under controlled conditions. The basic operations which are required by an agriculturist on the land are missing in the assessee’s case. Even if, growing of mushroom necessarily involve use of some soil, it could not by itself amount to carrying on a primary agricultural operation in the sense of cultivation of the soil. The assessee has failed to explain as to how it can be claimed that basic agricultural operations were carried out in mushroom production and how expenditure is incurred on primary operations i.e. planting of mushroom etc. and in the secondary operations for preserving it and making it marketable. In the light of these facts in our considered view, the Assessing officer has rightly treated the income from growing of mushroom as non-agricultural income.

13. Apart from above there is a further condition that such land should be assessed to land revenue which has also not been fulfilled by the assessee. There is yet another condition that such land should not be situated within Municipal limits whereas the Assessing Officer has given a clear-cut finding that the shed in which mushrooms were grown by the assessee, is located within the residential area of Jagadhari which is situated within Municipal limits. Therefore in view of these facts also the income earned by the assessee from growing of mushrooms cannot be treated as agricultural income. In view of this legal position we uphold the order of the ld. CIT(A).

14. In the result, both the appeals of the assessee are dismissed.