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2018 (8) TMI 69 - AT - Income TaxAgricultural income - exemption u/s 10(1) - Merely because instead of horizontal use on soil, vertical space is used, does the growth of mushrooms stand apart from agricultural operations? - Held that:- The process followed in the case of Best Roses Biotech (P.) Ltd.[2011 (11) TMI 373 - ITAT AHMEDABAD] in similar to the process followed by the assessee. 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. 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 land is for production of an agricultural product. Whether mushroom is a “fungi” and not “vegetable” - Held that:- 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 from the soil and is naturally grown, by such operation on soil which require expenditure of “human skill and labour”. The product so raised has utility for consumption, trade and commerce and hence would qualify as an “agricultural product” the sale of which gives rise to agricultural income. Mushroom, like vegetables and other crops or plants are grown on soil/land and are always attached to the soil until harvested. They draw their nourishment from the soil only. The product mushroom does not arise from any secondary agricultural operation. Unlike in the case of CIT vs. Kokine Dairy (1938 (4) TMI 3 - RANGOON HIGH COURT) relied on by the Ld.AO it cannot be said that production of mushroom is remotely connected with land. This product arises from land and is attached to land during growth and thereafter, just like ‘plants’ or a ‘crop’. Comparison made by the Ld.AO with sale of silk cocoons by relying on the judgment in the case of K.Lakshmansa & Co. vs. CIT [1980 (11) TMI 36 - KARNATAKA HIGH COURT] is wrong, as on facts silkworms feed on mulberry leaves and are not products which are raised from land. Mulberry leaves which are product arising from land, are fodder to silk worms. Hence, we conclude that Mushroom on the facts and circumstances of this case is an agricultural product raised from land. Whether agricultural production done under “controlled conditions”, results in the ‘product’ so raised not being a ‘product from agricultural activity’? - Held that:- ITAT Pune Bench in the case of Asst. CIT v. KF Bio Plants (P.) Ltd. [2012 (9) TMI 1105 - ITAT PUNE] 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. 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. - Decided in favour of the assessee.
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