2014 (12) TMI 799 - AT - Income Tax

Income from growing of sale of mushroom Income from agriculture or income from other sources Held that - The Notification relied upon by the assessee clearly shows that it pertains to butter mushrooms (Dhingri), Milky mushroom, oyster mushroom and any other edible mushroom - 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 in Commissioner Of Income-Tax, West Bengal, Calcutta Versus Raja Benoy Kumar Sahas Roy 1957 (5) TMI 6 - SUPREME Court it has been made clear 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 - there is no land on which tilling operations etc. is carried out. AO stated that 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 the AO has rightly treated the income from growing of mushroom as non-agricultural income. There is a further condition that such land should be assessed to land revenue which has also not been fulfilled by the assessee and such land should not be situated within Municipal limits whereas the AO 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 thus, the income earned by the assessee from growing of mushrooms cannot be treated as agricultural income thus, the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues Involved
1. Whether the income from growing and sale of mushrooms constitutes agricultural income exempt from tax under the Income Tax Act, 1961.
2. Interpretation of Section 2(1A) of the Income Tax Act, 1961 regarding the definition of agricultural income.
3. Applicability and relevance of various judicial precedents and government notifications to the case.

Detailed Analysis

1. Whether the income from growing and sale of mushrooms constitutes agricultural income exempt from tax under the Income Tax Act, 1961.
The primary issue was whether the income derived from the cultivation and sale of mushrooms should be considered agricultural income and thus exempt from tax. The assessee argued that the income from mushroom cultivation should be treated as agricultural income, citing previous assessments where such income was accepted as agricultural. The assessee also referred to certificates from government authorities and judicial precedents to support their claim.

2. Interpretation of Section 2(1A) of the Income Tax Act, 1961 regarding the definition of agricultural income.
The Tribunal examined Section 2(1A) of the Income Tax Act, 1961, which defines agricultural income. The section includes any rent or revenue derived from land used for agricultural purposes and income derived from such land by agriculture. The Tribunal referenced the Supreme Court decision in CIT v. Raja Benoy Kumar Sahas Roy, which stated that agriculture involves basic operations like tilling, sowing, and planting on the land. The Tribunal found that mushroom cultivation did not involve these basic agricultural operations, as mushrooms were grown in controlled conditions without tilling or planting on land.

3. Applicability and relevance of various judicial precedents and government notifications to the case.
The assessee cited various judicial precedents and government notifications to support their claim. The Tribunal noted that the cases cited by the assessee were based on different facts and did not apply to mushroom cultivation. The Tribunal also referred to a CBDT Circular No. 258, dated 14-6-1979, which stated that income from mushroom growing under controlled conditions is not agricultural income. Additionally, the Tribunal considered a notification from the Government of Himachal Pradesh declaring mushroom cultivation as an agricultural activity. However, the Tribunal held that this notification was not relevant for income tax purposes, as income tax is a central subject under the Constitution of India.

Conclusion
The Tribunal concluded that the income from growing mushrooms did not qualify as agricultural income under Section 2(1A) of the Income Tax Act, 1961. The Tribunal upheld the Assessing Officer's decision to treat the income as non-agricultural and taxable. The appeals of the assessee were dismissed. The order was pronounced in the open court on 28.10.2014.