Though not grown on land, yet

mushrooms are non-taxable

Mushrooms can’t be treated as non-agricultural
crop just because they are grown vertically instead
of horizontally: ITAT

Introduction MEENAKSHI SUBRAMANIAM

Former IRS officer
1. A man rushed out of the income-tax office, clutching his head
in desperation.
His anxious friend asked: “What happened?”
The man replied: “The officer has ruled that the mushroom is a plant.”
The surprised friend said: “Great ! You would get full tax exemption
under head ‘agriculture’.”
The man shook his head, vehemently: from side to side “ No, no.
The officer has said that the mushroom is a plant in factory.”
In a recent case, of Dy. CIT v. Inventaa Industries (P.) Ltd. 95 taxmann.
com 162, the Hyderabad Tribunal had to step in because the income-
tax department sprouted a new theory that mushrooms are not crops.
A comical argument was advanced that because mushrooms are
grown vertically, instead of horizontally, like all agricultural crops,
they are not farm produces.
Here’s the case, which shows how mushrooms were rescued from
becoming industrial plants.

Case of Dy. CIT v. Inventaa Industries (P.) Ltd. [2018] 95

taxmann.com 162 (Hyd. - Trib.)
2. The assessee-company engaged in manufacture of bulk drugs also
derived income from growing of “Edible white button mushrooms”
(Mushrooms) under the name of ‘Premier Mushrooms’. The assessee
was treating the income from growing of mushrooms as “income
from agriculture” and, hence, exempt u/s. 10(1) of the Income-tax
Act, 1961.
A survey operation was conducted at the mushroom growing unit,
at Kallakal, Telangana.

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 Though not grown on land, yet mushrooms are non-taxable
The gist of the submissions of the assessee
was as under:
u Operations are conducted on land which
is agricultural land and the operations
are agriculture in nature.
u Mushroom growth is a natural agricul-
tural activity and assessee is only a
facilitator. Therefore, the decision of
the Apex Court in the case of CIT v.
Venkateswara Hatcheries (P.) Ltd. [1999]
103 Taxman 503/237 ITR 174 applies.
There it was held that a natural product
can be produced only through natural
process and the facilities provided by
human effort is not relevant and the
production would always remain as
natural product. Also, merely because
the conventional method of production
is given a go by and artificial produc-
tion is introduced, it would not change
the character of production which is
natural.
2.1 Findings of the AO - The AO’s arguments
were as under:
u Mushrooms are grown by the assessee
in ‘growing rooms’ under ‘controlled
conditions’ in racks placed on shelves
above land. Compost is prepared with
paddy straw, gypsum, manure and urea,
which is not land. In CIT v. Kokine
Dairy [1938] 6 ITR 502 (Rangoon), it
was held the term ‘agriculture’ does
not cover activities which are remotely
connected with land and where assessee
had not performed basic operations
on land, the income derived was not
agricultural income. Such instances
are income from thopes, income from
sale of cocoons, income from sale of
eucalyptus oil, etc;
u Section 80JJA of the Act inserted by the
Finance Act, 1979 w.e.f. 1-4-1980 pro-
vided a deduction in respect of profit
and gains from business of growing
mushrooms and Circular No. 258,
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dated 14-6-1979 and the explanatory
Memorandum to the Finance Act, 1979,
and Circular No. 372/1983 conclude
that intent of the Legislature is that
growing of mushrooms is not in the
nature of agriculture income but is
reckoned to be income from business.
The AO made an addition of `  12,13,05,130
holding that income from growing of mushrooms
is not agricultural income and the assessee
should be assessed under the head “Business
or Profession.”
Aggrieved, assessee carried the matter in
appeal before the CIT(A) challenging, the
findings of the Assessing Officer.
2.2 Findings of the CIT(A) - After considering
the rival submissions, the First Appellate
Authority, relying on the definition of ‘Land’
and ‘Soil’ in Black’s Law Dictionary and
Random House dictionary, held that the
word ‘land’ includes any soil, and, hence,
the prepared soil is land. That soil is the
basis for production of mushrooms as initial
mushroom spawn is prepared and the spawn
is then cultured in a similar type of prepared
soil, to be used as seed for cultivation of
mushroom. Thereafter, the same is removed
from the soil and is spread over the soil
arranged in giant size trays, the depth of
which is up to 8 inches. These trays containing
soil and trays are kept vertically on the land
and the watering of the soil is done through
coir pith to maintain the required moisture.
The CIT(A) observed that just because the
assessee-company is using the land vertically
by using large trays, for producing mushroom,
by adopting a natural agricultural process
and by cultivating the soil, it cannot be
said that land is not used for production
of mushrooms.
The CIT(A) concluded that production of
mushrooms is a process of agricultural
production and agricultural income derived
is eligible for exemption u/s 10(1) of the Act.
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