Button Mushroom Cultivation Under Controlled Conditions Not Exempt as Agricultural Income, Taxable as Business Income: Madras HC [Read Order]
The Madras HC holds that income from button mushroom cultivation under controlled conditions is not agricultural income and is taxable as business income.
In a recent ruling, the Madras High Court held that income from cultivating white button mushrooms under controlled conditions is not agricultural income and is taxable as business income under the Income Tax Act, 1961.
The Income Tax Department filed appeals challenging the orders of the ITAT, which had affirmed the CIT(A)'s decision treating British Agro’s income from white button mushroom cultivation as exempt agricultural income under Section 10(1), read with Section 2(1A) of the Act. The department argued that mushrooms are fungi, not plants or vegetables, and are grown on trays under artificial conditions without actual use of land for agricultural purposes, so income from their sale cannot qualify as agricultural income.
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The company’s counsel argued that their mushroom cultivation involves using soil mixed with clay, paddy straw, and manure placed in trays, followed by operations like watering, weeding, disease control, and harvesting, which require human skill and labour. They argued that the mushrooms draw nourishment from the soil and the produce has utility for consumption and trade, so it qualifies as agricultural produce under Section 2(1A).
The revenue counsel argued that merely using trays with soil without actual land cultivation cannot be considered agriculture, and the controlled indoor process lacks the nexus to land as required under the Act. They further argued that mushrooms, being fungi, do not fall within the ambit of agricultural produce, and the department relied on multiple decisions to support their interpretation of “agriculture” under the Act.
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The bench comprising Justice R. Suresh Kumar and Justice C. Saravanan observed that under Section 2(1A), agricultural income requires a direct nexus with land used for agricultural purposes, and the product must be raised on such land.
The court observed that cultivating mushrooms in controlled factory conditions without using land for agriculture does not meet the statutory definition, regardless of the soil being placed in trays. The court also observed that the ITAT erred in relying solely on the Special Bench decision in Inventaa Industries without independently examining the statutory definition of agricultural income in the present case.
The court ruled that the activity of cultivating mushrooms under controlled factory conditions does not qualify as agriculture under the Income Tax Act, and the income from the sale of such mushrooms is taxable as business income.
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The court allowed the Income Tax Department’s appeals, held that the income from the sale of white button mushrooms cultivated under controlled conditions is not exempt, and reversed the ITAT and CIT(A)’s orders in favour of British Agro Products. The court clarified that controlled cultivation of mushrooms in trays does not equate to agricultural activity under Section 2(1A) and that the exemption under Section 10(1) is not available in such cases.
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