IN THE INCOME TAX APPELLATE TRIBUNAL<\/p>\n
SPECIAL (B) BENCH, HYDERABAD<\/p>\n
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT,
\n SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
\n AND
\n SMT. P. MADHAVI DEVI, JUDICIAL MEMBER<\/p>\n
ITA No. Asst. Year Appellant Respondent<\/p>\n
1015\/Hyd\/15 2008-09 M\/s. Inventaa
\n Industries Private
\n Dy. Commissioner of Limited,
\n1016\/Hyd\/15 2010-11 Income Tax, (Earlier known as M\/s.
\n Circle-2(1), Inventaa Chemicals Limited)
\n HYDERABAD HYDERABAD
\n1017\/Hyd\/15 2011-12 [PAN: AAACI4539B]<\/p>\n
1018\/Hyd\/15 2012-13<\/p>\n
C.O. No. A.Y. Cross-Objector Respondent<\/p>\n
53\/Hyd\/15 2008-09
\n In ITA No. 1015\/Hyd\/15 M\/s. Inventaa
\n Industries Private Dy.
\n Limited, Commissioner of
\n 54\/Hyd\/15 2010-11 (Earlier known as M\/s.
\n In ITA No. 1016\/Hyd\/15
\n Income Tax,
\n Inventaa Chemicals Limited) Circle-2(1),
\n HYDERABAD HYDERABAD
\n 55\/Hyd\/15 2011-12 [PAN: AAACI4539B]
\n In ITA No. 1017\/Hyd\/15<\/p>\n
56\/Hyd\/15 2012-13
\n In ITA No. 1018\/Hyd\/15<\/p>\n
For Revenue : Ms. K. Mamata Choudary,
\n Sr. Standing Counsel for I.T. Dept.,
\n For Assessee : Shri S. Rama Rao, &
\n Shri K. Gopal, ARs
\n :2:
\n ITA Nos. 1015 to 1018\/Hyd\/2015
\n C.O. Nos. 53 to 56\/Hyd\/2015<\/p>\n
Date of concluding the Hearing : 25-06-2018
\n Date of Pronouncement : 09-07-2018<\/p>\n
ORDER
\nPER J Sudhakar Reddy, AM:<\/p>\n
The Hon’ble President ITAT, constituted this Special Bench to decide the following question and appeals vide order dt.25-07-2017 <\/p>\n
“Merely because instead of horizontal use on soil, vertical space is used, does the growth of mushrooms stand apart from agricultural operations?”<\/p>\n
At the time of hearing, both the parties objected to the question framed. The Ld. Counsel for the assessee, Shri S. Rama Rao, submitted that the question, as framed, does not arise from the grounds raised by the revenue in these appeals. The Ld. Senior Standing Counsel, Ms. K.Mamata Choudary, submitted that the question does not reflect the grievance of the revenue, raised in its appeal. Both the parties requested the Bench to re-frame the question to be decided by the Special Bench and filed a combined memo in this regard suggesting a draft question. We are in agreement with the reframed question suggested by both the parties. This re-framed question was referred to the Hon’ble President, ITAT, who vide his order dt. 10th April, 2018, referred this re-framed question, to this Special Bench for disposal, along with the appeals as well as the cross objections for Assessment Years 2008-09, 2010-11, 2011-12 and 2012- 13:-<\/p>\n
The question referred is as follows:<\/p>\n
“Whether in the facts and circumstances of the case, the income from production and sale of Mushrooms can be termed as ‘agricultural income’ under the Income Tax Act, 1961?”<\/p>\n
Facts in brief:<\/p>\n
2. The assessee is a company engaged in the business of manufacture of bulk drugs. It also derives income from growing of “Edible white button mushrooms” ( Mushroom) under the name and style of ‘Premier Mushroom’. The assessee was treating the income from growing mushrooms as “income from agriculture” and hence exempt u\/s. 10(1) of the Income Tax Act, 1961 [Act]. A survey operation u\/s. 133A of the Act was conducted on 23rd September, 2013, at the mushroom growing unit of the assessee-company located at Kallakal – Village, Toopran – Mandal, Medak – District, Telangana. The Ld.Assessing Officer (AO) records that the survey was conducted to verify the process of mushroom growing by the assessee-company. During the course of survey, statements were recorded from Mr. K. Jagadish, Vice President (Operations) and Mr. C. Rajesh, another Vice President of the company. During the course of scrutiny proceedings, in reply to the queries raised by the AO, the assessee made various submissions. The gist of the submissions as summarized by the Ld.AO are set out in para 8, page 9 of the assessment order, the extract of which is as under:<\/p>\n
“8. The gist of the submissions of the assessee is as under: <\/p>\n
\u25cf Whether cultivation of mushrooms is agriculture or not is a question of fact.<\/p>\n
\u25cf Operations are conducted on land which is agricultural land and the operations are agriculture in nature. Mushroom is a nutritious vegetable. The spawn is grown on soil.<\/p>\n
\u25cf The operations are akin to nursery which has been recognized by the Act as agriculture by insertion of Explanation 3 to section 2(1A). \u25cf Various Government authorities, Banks\/FIs, World organizations and food organizations, Excise Department and others treat mushrooms as ‘vegetables’.<\/p>\n
\u25cf Mushroom growth is a natural agricultural activity and assessee is only a facilitator. Therefore, the decision of the Apex Court in the case of M\/s. Venkateswara Hatcheries Pvt Ltd (237 ITR 174) applies. In the said decision, the Supreme Court held tht 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 and cannot be attributed to any other process or activity associated or undertaken by human effort.<\/p>\n
\u25cf The term “land” and “soil” are interchangeable and soil is nothing but land. The assessee also quotes dictionary definitions of land and soil. \u25cf Reliance on section 80JJA is of no use as the section is repealed and perhaps it was the intention of legislature to treat mushroom cultivation as agriculture and hence repealing of the section.<\/p>\n
2.1. Findings of the A O :<\/p>\n
The findings of the Ld. Assessing Officer ( A.O.) are summarised as follows:<\/p>\n
a. Mushrooms are grown by the assessee in ‘growing rooms’ under ‘controlled conditions’ in racks placed on shelves above land and on Compost (manure) which is prepared with paddy straw, Horse manure, Chicken manure, Gypsum and Urea which is not land. Hence the activity is not agricultural activity.<\/p>\n
b. The Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy (1957) [32 ITR 466] held that, income derived from some measure of cultivation of land with some expenditure of human skill and labour, renders the profit derived from the ‘product’ agriculture income which would be exempt u\/s. 2(1A) of the Act. In the case of CIT Vs. Kokine Dairy (1938) [6 ITR 502], it was held that the term ‘agriculture’ does not cover activities remotely connected with land and when the assessee has not performed the basic operations on land, the income derived was held not to be agriculture income. Some of such instances are income from coconut thopes, income from sale of cocoons, income from sale of eucalyptus oil etc. <\/p>\n
c. Rule 7A, 7B and 8 of the Income Tax Rules, 1962 were referred to in support of the contention that unless income is derived from ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 performing basic operations on the land, the same could not be construed as ‘agriculture income’.<\/p>\n
d. Section 80JJA of the Act inserted by the Finance Act, 1979 w.e.f. 01- 04-1980 provided a deduction in respect of profit and gains from business of growing mushrooms and Circular No. 258, dt. 14-06-1979 and the explanatory Memorandum to the Finance Act, 1979, and Circular No. 372\/1983 were relied upon to conclude that intent and understanding of the Legislature is that growing of mushrooms is not in the nature of agriculture income but is reckoned as income from business. He rejected the contention of the assessee that the withdrawal of this Section 80JJA of the Act was because the Government was of the view that the income earned from growing of mushrooms is agriculture income and hence exempt from tax. Therefore, no further deduction was required, on the ground that this is far-fetched and illogical. <\/p>\n
e. There is no dispute regarding the various processes mentioned in the letters dt. 10-01-2014 and 17-02-2014 written by the assessee setting out the various stages involved in the growing of mushrooms. It is important to note that no operations are carried out on land. In the detailed submissions made by the assessee, which ran into several pages, there is no categorical assertion by the assessee that some of the basic operations are carried out on land. On the reliance placed by the assessee ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 on the definition of ‘land’ as given in the Black’s Law Dictionary, he held that soil could be construed as ‘land’, as per the dictionary meaning, if and only if, it remains attached to the earth. He held that the argument that soil even if removed from land would still be land, does not hold water. <\/p>\n
f. Regarding exemption of income derived from saplings or seedling grown in soil in pots, he held that this is a deeming provision introduced by the statute by way of explanation 3 to Section 2(1A) of the Act and hence cannot be extended to the assessee who is in the business of growing mushrooms.<\/p>\n
g. Mushroom cultivation is not “agriculture” and falls under the category of “Fungi Culture”. Reference was made to information available in Wikipedia, on the website http:\/\/www.americanmushroom.org \/ agaricus.pdf. He held that Mushroom is not a vegetable as argued by the assessee, but is a fungus. In outdoors, mushrooms grow on wood and the activity is not akin to that of a nursery.<\/p>\n
h. The claim of the assessee that it owns 33 acres of land is not in dispute but the mushroom growing activity is not performed on this land. When the assessee is in possession of 33 acres of agricultural land, it was not necessary to purchase ballclay at Rs. 1 per Kg from M\/s. Nyvelli ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 Lignite Corporation, Nyvelli for use in growing of mushrooms. Thus, land was never involved in the process of growing of mushrooms. <\/p>\n
i. Classification by or views of various Government and public sector agencies on whether growing of mushroom is an agricultural activity or not is of no consequence and does not help the assessee in claiming exemption u\/s. 10(1) of the Act.<\/p>\n
j. The statements recorded from the two senior functionaries of the assessee-company proves the fact that no agricultural operations were carried out on the land by the assessee, let alone basic operations on land. Even from the description of the activity, as evidenced from the website of the assessee-company, soil is only used for the purpose of providing stable bed in the trays and such activity is remotely connected with land. <\/p>\n
k. The Bangalore Bench of ITAT in the case of Blue Mountain Food Products Ltd., [14 ITD 254] held that mushroom growing is a business activity.<\/p>\n
l. The statement recorded from the Managing Director of the assessee-company demonstrates that the main layer bed is compost which is not soil and that ballclay is obtained by the assessee from M\/s. Nyvelli Lignite Corporation, Nyvelli. The Casing layer is only another ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 layer of manure mixed with coirpith, nutrients and ballclay, which helps in growth of mushrooms. The Managing Director did not give specific answers to the issue as to whether use of land was involved at any stage in the growth of mushrooms and whether the mushrooms in question are grown under controlled conditions.<\/p>\n
2.2. At para 40 & 41, the Ld. Assessing Officer concluded as follows:<\/p>\n
“40. From the above discussion, it is clear that either during the production of Spawn or in the preparation of Compost or Spawning the Compost no operations involving land or soil are carried out. The only instance of use of soil is when clay and coir pith is used as top dressing for providing moisture to the mushroom which are already sprouting or growing in the Compost. Hence, the operations carried out by the assessee in the growth of mushrooms do not meet the test of agricultural operations laid by the Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy (1957) [32 ITR 466]. Even the explanation 3 under section 2(1A) is not of any help to the assessee as no operations are carried out by it on land or in soil. Use of soil at a subsequent stage in the operations cannot be said to be carrying out of basic operations in the soil\/land as discussed in the judgment supra.<\/p>\n
41. In view of the detailed reasons mentioned above, I hold that income derived by the assessee from growing of mushrooms is not agricultural income and I proceed to assess the same as income under the head “Business or Profession”. Addition Rs. 12,13,05,430\/-”<\/p>\n
3. Aggrieved, assessee carried the matter in appeal before the Ld.CIT(A) challenging, for all the Assessment Years, the findings of the ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 Assessing Officer that income derived from production of mushroom is not agricultural income. It also challenged the reopening of the assessments by the AO for the AYs. 2008-09 and 2010-11. The issue of non-grant of depreciation by the Assessing Officer, in respect of the assets held for production of mushrooms, was also challenged for all the four Assessment Years.<\/p>\n
3.1. Before the Ld.CIT(A) assessee reiterated that growing of mushroom is an agricultural activity. It was submitted that, mushrooms are grown manually on the land in a specified atmosphere. It was contended that the assessee was producing a nutritious vegetable called mushroom which grow over a period of 1 \u00bd months on certain types of soil. A chart giving comparison between growing of mushroom and other crops was furnished. Reliance is placed on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Sri Venkateswara Hatcheries Pvt Ltd [237 ITR 174] on the proposition that growth of mushroom is a natural and biological process and hence mushrooms are not articles or things. Reliance was placed on the views of various governmental departments such as NABARD, State Bank of Hyderabad, Ministry of Commerce and Industry, Central Excise Department and Ministry of Agriculture on the proposition that Government of India has treated mushroom production as an agricultural production. Reliance was placed on a number of judgments in support of the proposition of law relied upon by the ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 assessee. The findings of the Ld. AO were sought to be rebutted by the assessee in its submissions before the Ld.CIT(A).<\/p>\n
4. In his rejoinder to these submissions, the Ld. AO for strengthening his findings that the cultivation of mushroom is not agricultural activity and that it is ‘fungi’ culture, relied on a report issued by PENN STATE College of Agricultural Sciences with regard to basic procedures for mushroom growing, wherein two different methods of growing mushrooms are given.<\/p>\n
5. Findings of the Ld.CIT(A):<\/p>\n
After considering the rival submissions, the Ld. First Appellate Authority has held as follows:<\/p>\n
a. The reopening of assessments is valid in law.<\/p>\n
b. He relied on the definition of ‘Land’ and ‘Soil’ given in the Black’s Law Dictionary and in Random House dictionary and held that the word ‘land’ includes any soil, and hence the prepared soil is land. That soil is the basis for production of mushroom as initial mushrooms 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 ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 spread over the soil arranged in giant size trays, the depth of which is up to 8 inches. These trays contain 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 Ld. CIT(A) relied on the literature published by the “Director of Mushroom Research” of “Indian Council of Agricultural Research” (ICAR) and came to a conclusion that usage of soil in these trays can be considered as usage of land. The Ld.CIT(A) also stated that ‘even for cultivation of other crops, the land in the form of ground cannot be used and that only the upper layer of the soil is to be prepared for tilling, ploughing, watering and manuring’. As preparation of soil is required for production of mushroom, he concluded that edible mushroom is grown on land.<\/p>\n
c. The Ld. CIT(A) held that the reference to Rule 7A, 7B and 8 of the Income Tax Rules, 1962 do not have any relevance to the facts of the assessee’s case.<\/p>\n
d. On the issue as to whether mushroom is a “plant” or “fungi”, the Ld.CIT(A) held that the questions in this case as to whether the process of production is agriculture or not and whether the produce grown is “plant” or “fungi” are not relevant and that the relevant factor to be determined is the process of production.<\/p>\n
e. He held that the word ‘agro’ means “land” and this definition includes soil which means all types of soils. The process of enriching the “soil” by adding fertilizers and wastages etc., is “culture of the soil” and when the soil is used for production of edible product, it is called as an agricultural product. <\/p>\n
f. The reference to provisions of Section 80JJA by the AO is not relevant as this provision of law is no longer in existence. <\/p>\n
g. On the reference to the material available in Wikipedia by the Assessing Officer, the Ld. CIT(A) held that though several thousands of species of mushrooms are there, only those which are grown on “soil” are “edible”.<\/p>\n
h. The Ld.CIT(A) referred to the judgement of the Hon’ble Supreme Court in the case of CIT Vs. Sri Venkateswara Hatcheries Pvt Ltd [237 ITR 174] for the proposition that merely because the conventional method of production is given a go by and artificial production is introduced, it would not change the character of production which is natural.<\/p>\n
i. The Ld.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 mushroom. It is a fact that the land is used for production, the sub-strata of which is soil. The ingredients of agricultural operations are embedded in the production of mushroom and the entire activity is similar to the production of any other vegetable and to the process of any other agricultural produce.<\/p>\n
j. The decision of the Bangalore Bench of the ITAT in the case of Blue Mountain Food Products Ltd., [14 ITD 254] is not relevant, as the question before the Bench was, whether depreciation can be allowed for determining the income or not and that this decision of the Bangalore Benches was given when the provision of Section 80JJA of the Act, was in existence in the statute and that a decision with reference to a section which was later repealed, cannot be a precedence.<\/p>\n
k. The views of various Government authorities and financial institutions, wherein mushroom is treated as a vegetable is relevant for the purpose of determining the issue. <\/p>\n
l. He relied on various decisions of the Hon’ble Supreme Court for the proposition that incentive provisions have to be liberally ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 interpreted and held that Section 10(1) of the Act has to be liberally interpreted.<\/p>\n
m. He held that the decision of the Chandigarh Bench of the Tribunal in the case of Chander Mohan Vs. ITO [52 taxmann.com 203] (Chandigarh- Trib) is distinguishable as the process for production followed in that case is different from the process followed by the assessee and that the type of mushroom produced in that case is different from those produced by the assessee.<\/p>\n
6. The Ld. CIT(A) concluded that production of mushroom is a process of agricultural production and income derived from such a process is agricultural income eligible for exemption u\/s. 10(1) of the Act. The ld. CIT(A) did not adjudicate the grounds of the assessee relating to its claim of depreciation.<\/p>\n
7. Aggrieved, Revenue has filed these appeals against this finding of the Ld. CIT(A) that income from production of mushroom is agricultural income. The assessee has filed cross-objections for the AYs. 2008-09 and 2010-11 on the issue of reopening and for all the four Assessment Years on the issue of claim of depreciation.<\/p>\n
Revenue’s submissions:<\/p>\n
8. Ld. Sr. Standing Counsel Smt. K. Mamata Choudary supported the order of the Ld.AO and made detailed arguments. The brief submissions filed by her, stated succinctly are as follows:<\/p>\n
\u2022 Mushrooms are fungus which are produced from spawn and not plants or crops and hence not agriculture. They are grown in trays of prepared soil in climate controlled rooms for commercial purposes. Even if certain activities are akin to cultivation, it cannot be treated as an agricultural income.<\/p>\n
\u2022 A fundamental characteristic of land is that it is immovable and is a fixed part of the topography. Soil is a component of land\/ earth but loses its identity of land once removed from it. Therefore soil ought not to be treated synonymously with land.<\/p>\n
\u2022 The reliance placed by the Assessee on the incomplete and selective definition of “Land” in Black’s Law Dictionary to include soil and thereby equating soil to land is misleading, misplaced and contrary to the principles of noscissur a sociis. In fact the definition of “Land” as occurring in the 8th Edn. of Black’s Law Dictionary makes it clear that land is the immovable portion of the earth’s surface.<\/p>\n
\u2022 Extract of “Land “from Black’s Law Dictionary (8th Edn.) <\/p>\n
\u2022 Online extract of Balck’s Law “Land”<\/p>\n
\u2022 UoIvs. V Krishnamurthy 1994-2-L.W 452 (Mad HC) @pa14 <\/p>\n
\u2022 (Noscitur a sociis)- State of Bombay and Ors. V Hospital Mazdoor Sabha AIR 1960 SC 610 @ pa 9.<\/p>\n
\u2022 The interpretation of ‘land’ for the purposes of Section 2(lA) assumes importance as it goes to the root of the legislative competence of the Parliament to tax such income. Entry 82 of List I of the Seventh Schedule read with Entry 46 of List II of the Seventh Schedule of the Constitution of India reserves the right to tax agricultural income with the States and outside the purview of the Union. Article 366(I) defines Agricultural Income to mean agricultural income as defined for the purposes of the enactments relating to Indian income tax.<\/p>\n
\u2022 CIT vs. Williamson Financial Services (2008) 2 SCC 202 @pa 18-30 \u2022 Contextually, ‘land’ under the Income Tax Act is the real immovable property as can be seen from its use in relation to rent, income, capital asset, etc. To clothe it with the interpretation as sought to be ITA Nos. 1015 to 1018\/Hyd\/2015 C.O. Nos. 53 to 56\/Hyd\/2015 advanced by the Assessee would be contrary to the legislative use of such word in the statute.<\/p>\n
\u2022 An exemption provision presumes the ability to tax certain types of income but such income being kept out of the scope of tax liability. The exclusion of agricultural income from the total income under Section 10(1) of the Act is not an exemption, as commonly perceived, as it is excluded on account of the Parliament having no power to tax agricultural income.<\/p>\n
\u2022 The Hon’ble Supreme Court has held in CITvs. Raja Benoy Kumar Sahas (1957) 32 ITR 466 (and reaffirmed time and again) that the primary activities of cultivation of the land such as tilling, sowing, planting, etc. have to be carried out on the land itself in order it to be treated as agriculture or as agricultural income. Undisputedly, in the present case, no such primary activities are carried out on the land and the land is only the premise from where such activity is carried on.<\/p>\n
\u2022 Classification of the land as agricultural land for land revenue purposes would not automatically lend the character of an agricultural income to activities carried out on it. Agricultural income would necessarily, by statutory definition, mean income from land actually used for agricultural purposes. <\/p>\n
\u2022 The legislative intent and understanding had expressly been stated to treat production of mushrooms under controlled conditions as business income and sought to briefly incentivise such business by providing for certain deductions under the then Section 80JJA. <\/p>\n
\u2022 Section 80 JJA \u2022 Explanatory Note to Finance Act 1979 <\/p>\n
\u2022 CBDT Circular No. 258 of 1979 dt 14.06.1979 <\/p>\n
\u2022 Controlled conditions are commonly understood to mean that the climatic\/environmental factors such as humidity, temperature, carbon dioxide, etc. are controlled.<\/p>\n
\u2022 Explanation 3 to Section 2(lA) relating to income from seeds and saplings grown in nurseries would not aid the case of the assessee as the income from such nurseries have been included in the scope of ‘agricultural income’ by way of a deeming fiction. A deeming provision is enacted for the purpose of assuming the existence of a fact which really does not exist. Hence, by necessary corollary, it would mean that the fact is that income from such nurseries is not agricultural income. A deeming fiction can only apply to the particular fiction it creates and cannot be expanded to any other type of activity.<\/p>\n
\u25cf Explanatory Note to Finance Act, 2008 <\/p>\n
\u25cf Manisli Trivedi vs. State of Rajasthan (2014) 14 SCC 420 @pa <\/p>\n
\u2022 The ITAT has, though in different contexts, consistently considered income from production of mushrooms as not to be agricultural income. In fact, the ITAT, in Blue Mountain Foods, rejected the Revenue’s contention that mushroom production is agriculture and allowed depreciation.<\/p>\n
\u2022 Blue Mountain v. ITO (1985) 14ITD 254 (BANG) \u2022 Chander Mohan vs. ITO [2014J 52 taxmann.com 203 (Chandigarh) @ pa 12-13 <\/p>\n
\u2022 ACIT vs. Malhotra Mukesh Satpal [2008J 115 ITD 467 (Pune) @ pa 3.24-3.27 <\/p>\n
\u2022 The ratio of judgment of the ITAT in Rachna Dogra vs. ITO does not pertain to the issue on hand and the observation therein as to production of mushrooms being agricultural must therefore be one of sub silentio and therefore not binding.<\/p>\n
\u25cf Sub silentio- Municipal Corporation of Delhi v. Gurnam Kaur (1989) 1SCC 101 @ pa 11.<\/p>\n
\u2022 The reliance sought to be placed by the assessee on various organisations, banks and departments’ classification of mushroom production as agriculture is not tenable as such classifications are not in pari material with that of the Income Tax Act and hence cannot be relied upon.<\/p>\n
\u25cf Maheshwari Fish Seed Farm vs. TNEB (2004) 4 SCC 705 @ pa 10- <\/p>\n
\u2022 The submission that the definition of mycelium is the vegetative part of the fungi and therefore is a vegetable is not tenable, as what is meant by vegetative part is the reproductive part of the fungus and not its classification as a vegetable.<\/p>\n
Assesse’s submissions:<\/p>\n
9. Ld. Counsel for the assessee Shri S. Rama Rao, relied on the order of the Ld.CIT(A) and in support thereof made the following submissions:<\/p>\n
\u2022 That mushrooms are broadly of two different categories, those which are edible and those which are not edible. Mushrooms grow spontaneously and among the edible mushrooms, the assessee produced a variety called “Edible white button mushrooms” which normally grow spontaneously in certain districts of Andhra Pradesh on Ant Hills.<\/p>\n
\u2022 That the AO considered a variety of mushroom which is called “Shiitake Mushroom” which is normally grown on wood and trees and therefore is not relevant to the facts of the assessee’s case. <\/p>\n
\u2022 That ballclay is a type of soil and that this soil is “cultured” by way of adding paddy straw, chicken manure, and other manure which degenerates into the soil.<\/p>\n
\u2022 That the terms ‘earth’, ‘land’ and ‘soil’ have to be understood in the right perspective and that the top layer of earth, of about 8″ to 10″, is “soil” and this “soil” is only useful for the purpose of any agriculture. That in any type of cultivation, this top 8″ to 10″ of land, which is “soil”, is what the farmer uses and that this is ploughed and cultured and prepared for agriculture production. <\/p>\n
\u2022 Referring to the argument of the Ld. Standing Counsel that land is immovable property and that the soil attached to such land, when cultured and used for production of plants is agriculture, he submitted that when the top layer of the land which is, “soil” becomes unfit for agriculture due to salinity, barrenness or otherwise, it is a common practice that soil is brought from river beds or some other sources and filled on top of the barren land and
\nused for cultivation. Traditionally \u201csoil\u201d was being excavated from
\none place and transported and used for cultivation in certain other
\nplace depending on the requirements.<\/p>\n
\uf095\uf020That the argument that land is immovable property and once soil
\nis detached from the land, it does not retain the character of the
\nland, is not correct. The word \u2018land\u2019 as per the definition of Black\u2019s
\nLaw Dictionary, 6th edition is synonymous for soil and includes
\nmaterial on the earth. That the words \u2018soil\u2019 and \u2018land\u2019 are used
\ninterchangeably based on the requirement.<\/p>\n
\uf095\uf020Reference was made that the definition of the word \u2018soil\u2019 in
\nRandom House dictionary and the definition of the word
\n\u2018agriculture\u2019 in Black\u2019s Law Dictionary, and it was argued that the
\nactual crux is for carrying out operations to make soil suitable for
\ngrowth and for production.<\/p>\n
\uf095\uf020He submitted that the soil\/compost is prepared by mixing of paddy
\nstock or other cellulose material, nitrogen and other ingredients in
\nsoil and that this is called \u2018land\u2019. That the entire land held by the
\nassessee is used for the production of mushrooms, as structures
\nare erected upon the land and trays with soil have been placed in
\nthese structures, which are used for growing of mushrooms. That all the components like straw etc., degenerate and become soil and
\nas specific type of soil is required for good growth of mushroom,
\nclay is purchased by the assessee and after enriching the clay, it is
\nused for production of mushrooms.<\/p>\n
\uf095\uf020He further submitted that the term \u2018controlled conditions\u2019 has to
\nbe viewed as opposed to wild growth and that the conditions of
\ngrowth are \u201ccontrolled\u201d by way of supplying water at the required
\ntime and in quantity, enriching the soil with fertilizers, manure and
\nsuch other material, to suit the crop which is sought to be grown.
\nPesticides are used to control pests from damaging the crop etc. He
\nsubmitted that with the improvement of technology in agricultural
\noperations, the degree of control has increased in agricultural
\nactivity and simply because advanced technology is used for
\nagricultural production, the operation does not cease to be an
\nagricultural operation. It is submitted that mushrooms are grown
\non soil with the expenditure of human, labour and skill and that
\ntechnology is used to aid the natural growth of this agricultural
\nproduce.<\/p>\n
\uf095\uf020Referring to the argument of the Ld. Standing Counsel that what is
\nused is spawn seed which means a group of eggs of fish, he
\nsubmitted that \u201cspawn\u201d by definition is also the mycelium of fungi, especially of mushroom grown to be eaten. He referred to
\n\u2018mycelium\u2019 as defined in Random House dictionary and submitted
\nthat it is \u2018the vegetative part or thallus of fungi\u2019 being composed of
\none or more filamentous elements or hyphae and that the use of
\nthe word \u2018spawns\u2019 does not decide whether the process in question
\nis an agricultural process or not. He claimed that the activity
\ninvolved in production of mushroom is agricultural operation.<\/p>\n
\uf095\uf020A comparative chart of the process of growth of mushrooms and
\nprocess of growth of vegetables and fruits was given to
\ndemonstrate that basic agricultural operations are performed in
\nthe production of mushroom<\/p>\n
\uf095\uf020That the assessee possesses Ac. 33.50 Guntas of agricultural land
\nat Kallakal \u2013 Village, Toopran \u2013 Mandal, Medak \u2013 District as well as
\n27.1 acres of agricultural land at Peddapuram, East Godavari
\nDistrict of Andhra Pradesh and that at both the places the land is
\nclassified as agricultural lands, as per Revenue records. He
\nsubmitted that land is used for cultivation of mushrooms. He listed
\nout the various operations undertaken and argued that it is not
\ncorrect to state that land is not used for cultivation of mushrooms.<\/p>\n
\uf095\uf020The Ld. Counsel submitted that whether mushrooms are \u2018fungus\u2019
\nwhich are produced from spawn and not plants or crops, is not relevant as the term \u2018agriculture\u2019 refers to systematic production
\nby performing basic operations on land. Once soil is cultured and
\ncertain basic operations are performed for the production of either
\nplant or fungi, it is called \u2018agriculture\u2019. Such basic operations
\nperformed on the land may be done for production of either the
\nplant or fruit or vegetables or flowers or any other item and the
\nterm \u2018Floriculture\u2019 etc., have come into use. The word \u2018Fungi
\nCulture\u2019 is used to denote the process of agriculture undertaken to
\nproduce \u201cfungi\u201d instead of \u201cplant\u201d and that mushroom is
\nconsidered as an agricultural product. Reference is made to the
\nreport of \u2018Directorate of Mushroom Research\u2019 that mushroom
\nproduction is considered as diversification of agricultural activities
\nfor meeting the challenges of providing food the nutritional
\nsecurity to people. He relied on certain articles published in
\ncertain journals for the proposition that mushrooms are edible
\nvegetables.<\/p>\n
\uf095\uf020On the reliance placed by the Revenue on Section 80JJA, it was
\nsubmitted that it supports the case of the assessee as only income
\nderived from the business of growing mushroom was considered
\nfor the purpose of grant of exemption and if income derived from growth of mushroom, is not of agricultural activity, the exemption
\nwould not be available.<\/p>\n
\uf095\uf020On the statements recorded from the officers and staff during the
\ncourse of survey, it was submitted that the questions were
\nmisleading. In response to such misleading questions, the
\nemployees had given replies and that these replies have been
\nquoted by the Revenue authorities out of context and that
\naffidavits were filed before the AO, explaining the statements and
\nrebutting the conclusions of the AO.<\/p>\n
\uf095\uf020That the reliance placed on the Transfer of Property Act for the
\ndefinition of immovable property is not relevant to the facts of this
\ncase.<\/p>\n
\uf095\uf020On the reliance placed on the decision in the case of Chander Mohan
\nVs. ITO [52 taxmann.com 203] (Chandigarh- Trib), he submitted
\nthat the assessee appeared in court in person and relied on a
\ncircular of Government of Himachal Pradesh, which was referring
\nto certain type of mushrooms and not to \u201cEdible white button
\nmushroom\u201d, grown by the assessee and that the process of growing
\nmushrooms was not explained and the production in that case was
\ndone within the city in residential houses.<\/p>\n
\uf095\uf020On a query from the Bench, the assessee filed the photographs of
\nmushrooms and of the green house cultivation of fruits and
\nvegetables.<\/p>\n
\uf095\uf020In brief a summary of the submissions of the assessee are as
\nfollows:<\/p>\n
\u201c(a) The assessee\u2019s object is to produce a nutritious vegetable required
\nfor the increased population.<\/p>\n
(b) For production of Mushrooms agricultural lands are used;<\/p>\n
(c) The lands held by the assessee are agricultural lands and are treated
\nas such by the Banking authorities and also the revenue authorities.<\/p>\n
(d) The base for production is land\/soil prepared with Paddy straw,
\nmanure and other ingredients;<\/p>\n
(e) The soil so prepared is cultivated by providing manures, pesticides,
\nwater and other necessary ingredients;<\/p>\n
(f) The process of production is the same as in any other agricultural
\nproduce\/plant.<\/p>\n
(g) Seeds are obtained from the matured mushroom; they are spawn
\nover the processed soil; watering is done periodically; the growth is
\nobserved and harvesting is done.<\/p>\n
(h) The whole cycle is like growing any other vegetable plant;<\/p>\n
(i) The Govt. departments; financial institutions; world organization;
\nthe Food Organisations treated mushroom as agriculture.\u201d<\/p>\n
10. Cross objections:<\/p>\n
On the cross-objections, Ld. Counsel for the assessee Sri K. Gopal
\nsubmitted that the reasons for reopening were not provided to the
\nassessee despite several reminders. The Ld. Standing Counsel pointed
\nout that reasons for reopening were furnished to the assessee and that
\nthe copy of the same were placed by the assessee in its Paper Book. No
\nother arguments were advanced by the ld. Counsel for the assessee on
\nthis issue of re-opening. This ground on the issue of reopening of
\nassessment u\/s. 147 of the Act arises for the AYs. 2008-09 and 2010-11
\nonly. As the argument of the Ld. Counsel for the assessee is found to be
\nfactually incorrect, these grounds of cross-objections are dismissed.<\/p>\n
10.1. The other grounds taken up by the assessee in the crossobjections
\nfor all the four assessment years have not been pressed for the
\nreason that, relief was granted to them by the Ld.CIT(A) during the course
\nof 154 proceedings. Hence these grounds are dismissed.<\/p>\n
Revenue\u2019s rejoinder:<\/p>\n
11. In her rejoinder, Smt. Mamata Choudary reiterated her
\ncontention that, for an income to be an agricultural income, it should be
\nderived by performing basic operations on land which is an immovable
\nproperty. On a query from the Bench, she submitted that the Revenue
\ndoes not dispute that what is spread in the trays is \u2018soil\u2019 on which
\nmushroom is grown.<\/p>\n
Findings:<\/p>\n
12. We have carefully considered the submissions of both the
\nLd. Counsels, the orders of the Ld.AO, as well as Ld.CIT(A), case law cited
\nby both the parties and material placed before us, as well as before the
\nRevenue authorities.<\/p>\n
12.1. The process followed by the assessee for production of
\n\u201cEdible white button mushroom\u201d is as follows:-<\/p>\n
Stage-I Preparation of compost involves taking the ingredients such as
\nPaddy Straw, Chicken manure, Gypsum and some Ammonia compound and
\nadding sufficient water and mixing. Then, transferred to bunkers for further
\ndecomposition under aeration.<\/p>\n
Stage-II After five days the compost is transferred from bunkers to tunnels
\nfor pasteurization and conditioning.<\/p>\n
Stage-III. The above prepared compost is transferred to growing rooms
\nwith SPAWN (seed) and placed in the shelves. This layer will be of about 200
\nmm thickness. The SPAWN run (i.e., spreading of SPAWN) takes about 12
\ndays to 20 days. This is done under controlled conditions in the growing
\nrooms.<\/p>\n
Stage-IV After the SPAWN Run, the beds are cased with casing soil of about
\n50 mm thickness. The casing soil is prepared by mixing Coir Pith, Ballclay
\nwith suitable other micro nutrients and SPAWN. Then Case Run is allowed
\nfor the SPAWN to spread. It may take 6-8 days. After this venting is done by
\ngiving Air, Temperature, C02 and moisture to SPAWN upon which it starts
\nforming, Pins (primodia).
\nStage- V After the Pins, the mushroom grows into Harvesting in 13-21 days.
\nThe Harvesting is done in 2-3 flushes (picking).
\nStage- VI After the 2-3 flushes, the growing room is cooked out i.e., heated
\nup to 65 C Degrees to kill the remaining mycelium, mushrooms pins and
\nmushrooms. The racks and shelves are unloaded and kept cleaned for next
\nloading. The One batch Cycle in growing rooms takes about 45-53 days.
\n12.2. On these facts and circumstances, the following issues arise
\nfor our consideration which would answer the question referred to us.
\ni. \u201cLand\u201d is immovable property. Soil is part of land. If \u201csoil\u201d is placed
\nin trays or pots and when operations are carried out on this \u201csoil\u201d, which
\n:32:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nis detached from land, for production of mushroom, could such activity
\nbe termed as agricultural activity?
\nii. Is mushrooms a \u201cfungi\u201d or \u201cvegetable or plant\u201d? Is the income
\nderived from the production and sale of mushroom, agricultural income
\nif the product is a \u2018fungi\u2019?
\niii. When agricultural production is done in \u201ccontrolled conditions\u201d,
\ndoes it cease to be agricultural operation resulting in the income derived
\ntherefrom not being agricultural income?
\n12.3. Before we go into these questions, we reproduce Section
\n2(1A) of the Act:
\n\u201c(1A) 4 ]” agricultural income” means-
\n(a) any rent or revenue derived from land which is situated in India and is used for
\nagricultural purposes;
\n(b) any income derived from such land by-
\n(i) agriculture; or
\n(ii) the performance by a cultivator or receiver of rent- in- kind of any process
\nordinarily employed by a cultivator or receiver of rent- in- kind to render the produce
\nraised or received by him fit to be taken to market; or
\n(iii) the sale by a cultivator or receiver of rent- in- kind of the produce raised or
\nreceived by him, in respect of which no process has been performed other than a
\nprocess of the nature described in paragraph (ii) of this sub- clause;
\n(c) any income derived from any building owned and occupied by the receiver of the
\nrent or revenue of any such land, or occupied by the cultivator or the receiver of rentin-
\nkind, of any land with respect to which, or the produce of which, any process
\nmentioned in paragraphs (ii) and (iii) of sub- clause (b) is carried on: 1 Provided that-
\n(i) the building is on or in the immediate vicinity of the land, and is a building which
\nthe receiver of the rent or revenue or the cultivator, or the receiver of rent- in- kind, by
\nreason of his connection with the land, requires as a dwelling house, or as a storehouse,
\nor other out- building, and
\n(ii) the land is either assessed to land revenue in India or is subject to a local rate
\nassessed and collected by officers of the Government as such or where the land is not
\nso assessed to land revenue or subject to a local rate, it is not situated-(A) in any area
\nwhich is comprised within the jurisdiction of a municipality (whether known as a
\n:33:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nmunicipality, municipal corporation, notified area committee, town area committee,
\ntown committee or by any other name) or a cantonment board and which has a
\npopulation of not less than ten thousand according to the last preceding census of
\nwhich the relevant figures have been published before the first day of the previous
\nyear; or
\n(B) in any area within such distance, not being more than eight kilometers, from the
\nlocal limits of any municipality or cantonment board referred to in item (A), as the
\nCentral Government may, having regard to the extent of, and scope for, urbanisation
\nof that area and other relevant considerations, specify in this behalf by notification 2
\nin the Official Gazette.] 3 Explanation.- For the removal of doubts, it is hereby declared
\nthat revenue derived from land shall not include and shall be deemed never to have
\nincluded any income arising from the transfer of any land referred to in item (a) or
\nitem (b) of sub- clause (iii) of clause (14) of this section;]\u201d
\n12.4. We now reproduce the relevant portions of the landmark
\njudgment of the Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy
\nKumar Sahas Roy (1957) [32 ITR 466] on agricultural issue.
\n\u201cThe primary sense in which the term agriculture is understood is
\nagar\u2014field and cultra\u2014cultivation, i.e., the cultivation of the field, and
\nif the term is understood only in that sense agriculture would be
\nrestricted only to cultivation of the land in the strict sense of the term
\nmeaning thereby, tilling of the land, sowing of the seeds, planting and
\nsimilar operations on the land. They would be the basic operations and
\nwould require the expenditure of human skill and labour upon the land
\nitself. There are however other operations which have got to be resorted to by
\nthe agriculturist and which are absolutely necessary for the purpose of
\neffectively raising the produce from the land. They are operations to be
\nperformed after the produce sprouts from the land, i.e., weeding, digging the
\nsoil around the growth, removal of undesirable undergrowths and all
\noperations which foster the growth and preserve the same not only from
\ninsects and pests but also from depredation from outside, tending, pruning,
\ncutting, harvesting, and rendering the produce fit for the market. The latter
\nwould all be agricultural operations when taken in conjunction with the basic
\noperations above described, and it would be futile to urge that they are not
\nagricultural operations at all.
\nThe term ‘agriculture’ is understood as comprising within its scope the
\nbasic as well as subsequent operations in the process of agriculture and
\nthe raising on the lands of products which have some utility either for
\nconsumption for trade and commerce, it will be seen that the term
\n‘agriculture’ receives a wider interpretation both in regard to its
\noperations as well as the results of the same. Nevertheless there is
\npresent all throughout the basic idea that there must be at the bottom of
\n:34:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nits cultivation of land in the sense of tilling of the land, sowing of the
\nseeds, planting, and similar work done on the land itself.
\n(Emphasis ours)
\n12.5. This judgment makes it clear that the term \u2018agriculture\u2019 is
\n\u201ccultra\u201d i.e. cultivation of the \u201cagar\u201d i.e. field\/land. Agricultural activity
\nrequires expenditure of human skill and labour, upon the land itself and
\nthis should result in effectively raising a \u201cproduct\u201d from the land. The
\n\u201cproduct should have some utility either for consumption, for trade and
\ncommerce. The term \u201cAgriculture\u201d receives a wider interpretation both
\nwith regard to its \u201coperations\u201d as well as the \u201cresults\u201d of such operation.
\n12.6. The horizon of interpreting the term \u2018agriculture\u2019 was given
\na more adaptive width by the High Court of Madras in CIT v. K.E. Sundara
\nMudaliar [1950] 18 ITR 259 (MAD.), wherein the court stated as under:
\n\u201c In Panadai Pathan v. Ramasami Chetti [1922] ILR 45 Mad\u2026Spencer. J., at page 713
\nstated his conclusion in these words: In my opinion agriculture connotes the raising of
\nuseful or valuable products which derive nutriment from the soil with the aid of human
\nskill and labour;\u2026Ramesam. J., at page 714 was against placing a narrower
\ninterpretation upon the word for he says: To give a narrower interpretation to the term
\nand to confine it to the raising of products used as food for man and beast will exclude all
\ncultivation of fibrous plants such as cotton, jute and linen and all plants used for dyeing
\npurposes, such as indigo, etc., all timber trees, and flowering plants. I do not think this is
\nthe intention of the Act.\u201d
\nThe concurrent view in this very judgment of Shri Vishwantha
\nSastri.J., is that
\n\u201cThere being no definition of \u201cagriculture\u201d and agricultural purpose in the Act the
\nwords have to be construed and understood in their popular sense and according to
\ntheir ordinary meaning.
\n:35:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nIt is a matter of ordinary experience at least in this part of the country that mango,
\ncoconut, palmyra, orange, jack, arecanut, tamarind and other trees are planted
\nusually in an enclosed land and that these trees do not yield any fruit or crop in the
\nearly years of their growth. They remain on the land for a long number of years
\nyielding fruit only after their maturity. There is no reason why the planting rearing,
\nwatering, fencing and protection of such trees and the gathering of their fruits during
\nthe annual seasons should not be held to be agriculture\u201d. There is some kind of
\ncultivation or prodding of the soil at the inception when the planting is done and
\nsubsequently also at intervals. In the case of coffee grown on hiss slopes, there is no
\nploughing or tillage as in the case of wet and dry fields, but it cannot be maintained
\nthat growing coffee is not an agricultural operation.\u201d
\n12.7. The Hon\u2019ble High Court as far back as in the year 1950, held
\nthat operations on land does not necessarily mean ploughing, tillage and
\ncan be of some other kind also. The operation would depend on the
\nrequirements of the circumstances of the case. A wide meaning has been
\ngiven to the term agricultural operation\u201d.
\n12.8. Though the Ld. Assessing Officer has held that the compost
\nused for production of mushroom by the assessee is not \u201csoil\u201d, the Ld. St.
\ncounsel, in reply to a specific query from the Bench, stated that this
\ncompost on which mushroom is grown is \u201csoil\u201d.
\n12.9. Hence, the undisputed facts are that, mushrooms are grown
\non \u201csoil\u201d. Certain basic operations are performed on such \u201csoil\u201d which
\nrequire \u201cexpenditure of human skill and labour\u201d on the soil resulting in
\nraising a \u201cproduct\u201d called \u201cEdible white button mushroom\u201d. The product
\n\u201cEdible white button mushroom\u201d has utility for consumption, trade and
\ncommerce.
\n12.10. The Ld. Standing Counsel referred to the decision of the
\nHon’ble Madras High Court in the case of Union of India Vs. Krishna
\n:36:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nMurthy (supra) wherein at para 14, Mullah\u2019s commentary on Transfer of
\nProperty Act has been extracted along with definition of immovable
\nproperty under \u201cGeneral clauses Act\u201d, and argued that land is immovable
\nproperty and once soil is detached from land, it ceases to be land.
\nDefinitions as relied upon by the parties are extracted for ready
\nreference:
\n\u201cLAND
\nIn the Black\u2019s Law Dictionary, free online legal dictionary, 2nd Edition,
\n\u201cland\u201d is defined as:
\nIn the most general sense, \u201ccomprehends any ground, soil or earth
\nwhatsoever; as meadows, pastures, woods, moors, waters, marshes, furzes
\nand heath.Co.Litt 4a. The word \u201cland\u201d included not only the soil but
\neverything attached to it, whether attached by the course of nature, as trees,
\nherbage, and water, or by the hand of man, as buildings and fences.
\n\u201cland\u201d is the solid material of the earth, whatever may be the ingredients
\nwhich it is composed of whether soil, rock or other substance .\u201d
\n\u2018SOIL\u2019
\nThe word \u201csoil\u201d as per Random House Dictionary \u2013 The Unabridged Edition
\nto include \u201cany place or condition providing the opportunity for growth or
\ndevelopment.\u201d
\n12.11. \u201cSoil\u201d is the thin skin that covers the land. \u201cSoil\u201d is material
\nin the top layer of the surface of the earth on which plants can grow and
\n:37:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nis a non-renewable resource. It takes ages for rocks to wither into soil and
\nrich organic matter to build up. Land is a part of the earth, while soil refers
\nto one part of the land. Land, as commonly understood means, the surface
\nof the earth not covered by a body of water. Thus, the term land includes
\nsoil. In the definition referred above, \u201cland\u201d is defined in an inclusive
\nmanner.
\n12.12. The Ld. Standing Counsel relied on the principles of
\n\u201cNoscitur A Sociis\u2019 for interpretation the word \u2018Land\u2019. She also argued
\nthat contextually The Indian Income Tax treats land as real immovable
\nproperty.
\nThe terms \u2018Noscitur a Sociis\u2019 is related to legal doctrine and statutory
\ninterpretation of laws.
\nIn Latin the term \u2018Noscitur a Sociis\u2019 means \u2018the meaning of a word may be
\nknown from accompanying words\u2019. It is also used for interpreting
\nquestionable words in statutes. When a word is ambiguous, its meaning
\nmay be determined by reference to the rest of the statute. It is one of the
\nrules of the language used by the courts that helps to interpret legislation.
\nFor the case with \u201cnoscitur a sociis\u201d the questionable meaning of a word
\nor doubtful words can be derived from its association with other words
\nwithin the context of the phrase. This indicates that words in a list which
\nis within a statute have meanings that are related to each other.
\n:38:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nThe principle of Noscitur a Sociis is a rule of construction. It is used by the
\ncourt to interpret legislation. This means that the meaning of an unclear
\nword or phrase must be determined by the words that surround it. In
\nother terms, the meaning of a word must be judged by the company that
\nit keeps. The questionable meaning of a doubtful word will be derived
\nfrom its association with other words. It is used wherever a statutory
\nprovision constitutes a word or phrase that is capable of bearing more
\nthan one meaning.
\nThis rule is explained in the Maxwell on the interpretation of statutes in
\nthe 12th edition in following words \u2013 When two or more words
\nsusceptible of analogous meaning are coupled together, they are
\nunderstood to be used in their cognate sense. The words take their color
\nfrom and are quantified by each other, the meaning of the general words
\nbeing restricted to a sense analogous to that of the less general.
\nThis principle needs a word or phrase or even a whole provision that
\nstands alone has a clear meaning, will be given quite a different meaning
\nwhile viewed in the light of its context.
\n12.13. No doubt the term \u2018land\u2019, as argued by the Ld. Sr. Standing
\nCounsel, is generally understood as immovable property, under the
\nIncome Tax Act and under the T.P. Act. But in the case on hand, the
\ncontext and purpose for which the term \u2018Land\u2019 has been used by the
\nlegislature has to be understood. Use of land and performing activity on
\nland itself, is the requirement specified for a natural product that raises
\nfrom land itself, to be an agricultural product, the income from which is
\n:39:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nexempt from tax. If the question to be answered is whether land is used
\nfor production or not, then in our view strict interpretation cannot be
\napplied.
\n12.14. The term \u2018Land\u2019 in our view has to be interpreted by using
\nthe principles of \u2018Purposive Interpretation\u2019.
\nThe purposive approach (sometimes referred to as purposivism,
\npurposive construction, purposive interpretation, or the modern
\nprinciple in construction) is an approach to statutory and constitutional
\ninterpretation under which common law courts interpret an enactment
\n(a statute, part of a statute, or a clause of a constitution) within the
\ncontext of the law’s purpose.
\nPurposive interpretation is a derivation of mischief rule set in Heydon’s
\nCase, and intended to replace the mischief rule, the plain meaning
\nrule and the golden rule. Purposive interpretation is used when the courts
\nuse extraneous materials from the pre-enactment phase of legislation,
\nincluding early drafts, Hansard\u2019s committee reports, and white papers.
\nThe purposive interpretation involves a rejection of the exclusionary rule.
\nSupreme Court in Tirath Singh v. Bachittar Singh approved and adopted
\nthe said approach. In Shamrao V. Parulekar v. District Magistrate, Thana,
\nBombay the Court reiterated the principle from Maxwell:
\n\u201cIf one construction will lead to an absurdity while another will give effect
\nto what commonsense would show was obviously intended, the
\nconstruction which would defeat the ends of the Act must be rejected
\n:40:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\neven if the same words used in the same section, and even the same
\nsentence, have to be construed differently. Indeed, the law goes so far as
\nto require the Courts sometimes even to modify the grammatical and
\nordinary sense of the words if by doing so absurdity and inconsistency
\ncan be avoided.\u201d
\nIn Molar Mal v. Kay Iron Works (P) Ltd, the Hon’ble Supreme Court while
\nreiterating that courts will have to follow the rule of literal construction,
\nwhich enjoins the court to take the words as used by the Legislature and
\nto give it the meaning which naturally implies, held that there is an
\nexception to that rule. The Court observed:
\n\u201cThat exception comes into play when application of literal
\nconstruction of the words in the statute leads to absurdity,
\ninconsistency or when it is shown that the legal context in which
\nthe words are used or by reading the statute as a whole, it
\nrequires a different meaning.\u201d
\nIn Mangin v. Inland Revenue Commission the Privy Council held:
\n\u201cThe object of the construction of a statute, be it to ascertain the
\nwill of the legislature, it may be presumed that neither injustice
\nnor absurdity was intended. If, therefore a literal interpretation
\nwould produce such a result, and the language admits of an
\ninterpretation which would avoid it, then such an
\ninterpretation may be adopted\u201d.
\n12.15. \u2018Soil\u2019 is a part of the land. Land is also part of earth. The
\nupper strata of the land is soil and this is cultured and made fit for
\nproduction of crops, vegetables and fruits etc., by enriching the soil.
\nWhen such soil is placed on trays, it does not cease to be land and when
\n:41:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\noperations are carried out on this \u201csoil\u201d, it would be agricultural activity
\ncarried upon land itself.
\n12.16. If the strict interpretation, as argued by the Ld. Standing
\nCounsel is accepted then, when \u2018Soil\u2019 attached to earth is cultivated, it is
\nagricultural activity and when \u2018Soil\u2019 is cultivated after detaching the same
\nfrom earth, it is not agricultural activity. Such an interpretation in our
\nview, would be unintended and unfair. The only part of the land that is
\ncultivable, and which is useful for agricultural activity is \u2018Soil\u2019 which is the
\ntop layer of land. Then whether such soil is attached to land or is placed
\nin containers above the land should in our humble view, not make a
\ndifference. Though these strong arguments of the Ld. Standing Counsel
\nappealed to us ab-initio on an analysis of the purpose for which the term
\nis to be interpreted, we are unable to persuade ourselves to accept the
\nsame. If the term \u2018Agri\u2019 is \u2018field\u2019, then \u2018field\u2019 can be on land or on a \u2018terrace\u2019
\nor on a \u2018pot\u2019, \u2018tray\u2019 etc., In view of the above discussions, we hold that it
\nis important to distinguish between the meaning of the term \u2018soil\u2019 from
\n\u2018land\u2019, because the cultured top strata of the earth\u2019s surface, which is fit
\nfor arable cultivation, is actually what is required for agricultural
\npurposes and this top layer (being \u2018soil\u2019) is one on which actual
\nagricultural growth takes place. In contrast, the meaning attributed to
\nland (primarily as an immovable object) is of a wide import. For the
\npurpose of understanding the nexus between an agricultural operation
\nand an agricultural land, what needs to be inferred from the term \u2018land\u2019 is
\nthat, the cultured top layer of the earth, which is fit for any sort of
\ncultivation, is land for this purpose. Hence, in our opinion, the soil which
\n:42:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nis placed on the vertical space above the land in trays, in one sense of the
\nterm, is also land.
\n13. We now consider the arguments on the explanation 3 to
\nSection 2(1A) of the Act. The assessee relies on Explanation-3 to Section
\n2(1A) which reads as follows:
\n\u201c3. For the purposes of this clause, any income derived from saplings
\nor seedlings grown in a nursery shall be deemed to be agricultural
\nincome.\u201d
\nThus, what is not otherwise agricultural income, is deemed under
\nthe explanation as agricultural income.
\nShri P. Chidambaram, the then Hon’ble Finance Minister, while
\npresenting Union Budget for 2008-09 at para 167 stated as follows:
\n\u201cAgriculture income is exempt from income tax. However, courts
\nhave ruled the growing saplings or seedlings of land is agriculture. But
\ngrowing them in pots is not agriculture. This does not seem to be fair.
\nHence, I propose to exempt from tax income arising from saplings or
\nseedlings grown in a nursery.\u201d (Emphasis on)
\nWhile introducing explanation 3 to Section 2(1A) of the Act, in the
\nexplanatory note at para 4.2. It is stated as follows:-
\n\u201cWith a view to giving finality to the issue, and Explanation in Section 2 of the
\nIncome-tax Act, has been inserted providing that any income derived from
\nsaplings or seedlings grown in a nursery shall be deemed to be agricultural
\nincome. Accordingly, irrespective of whether the basic operations have been
\ncarried out on land, such income will be treated as agricultural income, thus
\nqualifying for exemption under sub-section(1) of Section 10 of the Act.\u201d
\n(Emphasis ours)
\n:43:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\n13.1. It is true that this Explanation 3 to Section 2(1A) of the Act,
\nis a deeming provisions in the Act. It is also true that deeming fiction
\ncannot be extended and should be strictly restricted to the fiction created.
\nThe impression that this amendment was brought into the statute to
\nnullify certain judicial pronouncements is factually incorrect. The courts
\nhave decided that income from nursery is agricultural income.
\n13.2. The Hon\u2019ble High Court of Madras in Commissioner of
\nIncome-tax v. Soundarya Nursery [2000] 241 ITR 530 (Madras), in which
\nthe court observed as under:
\n\u201c8. All the products of the land, which have some utility either for consumption or
\nfor trade or commerce, if they are based on land, would be agricultural products.
\nHere, it is not the case of the revenue that without performing the basic
\noperations, only the subsequent operations, as described in the decision of the
\nApex Court have been performed by the assessee. If the plants sold by the assessee
\nin pots were the result of the basic operations on the land on expending human
\nskill and labour thereon and it was only after the performance of the basic
\noperations on the land, the resultant product grown or such part thereof as was
\nsuitable for being nurtured in a pot, was separated and placed in a pot and
\nnurtured with water and by placing them in the greenhouse or in shade and after
\nperforming several operations, such as weeding, watering, manuring, etc., they
\nwere made ready for sale as plants all these operations would be agricultural
\noperations and all this involves human skill and effort. Thus, the plants sold by
\nthe assessee in pots were the result of primary as well as subsequent operations
\ncomprehended within the term \u2018agriculture\u2019 and they are clearly the products of
\nagriculture.\u201d
\n13.3. Thus, the Hon\u2019ble High Court gave breadth to a more
\nexpansive definition of the term \u2018agricultural products\u2019 by including
\nwithin its meaning all products of land, having some utility either for
\nconsumption or for trade or commerce and also, inferred that plants sold
\nby the assessee in pots to be comprehended within the term \u2018agriculture\u2019.
\nThis judgment was delivered in the year 1998, August 5th, much before
\n:44:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nthe introduction of explanation 3 to Section 2(1A) of the Act in the year
\n2008. Similar is the judgement in the case of CIT, Chennai vs. K.N.
\nPannerselvam (2016) 75 taxmann.com 98 (Madras). The judgment of the
\nHon\u2019ble Allahabad High Court in H.H. Maharaja Vibhuti Narayan Singh vs.
\nState of U.P. (1967) 65 ITR 364, was considered by the Hon\u2019ble Madras
\nHigh Court in the case of Soundarya Nursery (supra) at para 6 of the
\njudgment. The Court held that the observation of the Hon\u2019ble Allahabad
\nHigh Court was clearly an obiter.
\nThis judgment in the case of Soundarya Nursery (supra) required basic
\nobjections to be performed on land for the income to be exempt as
\nagricultural income. Before the introduction of Explanation 3 to Section
\n2(1A) of the Act, growing plants in pots was interpreted as agricultural
\nactivity by the courts. What this explanation does is to expand this
\ninterpretation further. It lays down that the basic operations are not
\nnecessary in nurseries, as required by the judgment in the case of
\nSoundarya Nursery (see explanation note). Hence, even without this
\nexplanation, the income from plants grown in pots was held as
\nagricultural income by the courts. As this explanation is a deeming
\nprovisions, we cannot apply the same to the assessee. But as the assessee
\nperforms basic operations on soil, the ratio of the judgment in the case of
\nSoundarya Nursery (supra) applies to the facts of this case.
\n13.4. The Ahmedabad Bench of the ITAT in the case of DCIT vs.
\nBest Roses Biotech Ltd. (2012)17 taxmann.com 56 (Ahd.) has held as
\nfollows:-
\n:45:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\n\u201c6.1 Activity in question : The company had developed a greenhouse for the
\nestablishment of a floriculture project. The company had grown good quality
\nof rose flowers and also exported them abroad. It was explained that for the
\nplantation of roses a very well treated soil is required. The quality of the soil is
\ntherefore tested. Manures are mixed for preparing a base for growing the rose
\nplants. The company has installed a proper drainage system. Certain
\noperations such as mixing of soil and watering of plants through drainage are
\nexplained. Then the activity of pruning and bending of growing plants carried
\nout to get best size of rose buds. It has also been explained that pest control is
\nalso required. Insecticides are sprinkled to save the plants from any disease.
\nFrom the facts as emerged from the compilation filed we have gathered that
\nwithin greenhouse the floriculture activity comprises of growing of rose by
\ndeploying hydroponics technique for the farming of best quality roses. It is
\nstated that the assessee has deployed a budding technical plant. Further it was
\nexplained that root stocks were brought from the market and placed in the
\ngreen house. The plantation and the generation of sapling was nothing but
\nagricultural activity. The mother plant is otherwise reared on earth. For
\nrearing of mother plant human labour is involved. The tilling of soil, watering
\nand other primary agricultural activity is the basic requirement for the
\ngrowing of the rose plants. Subsequently the saplings are planted on plastic
\ntrays, which were kept at the height 2-3 ft. placed on MS stand. It was explained
\nthat the purpose of growing the rose plants at a height is primarily to avoid
\nthe pest and to develop in a controlled atmosphere. By this method, the rose
\nplant is protected from climate, pest, as well as other disease, to minimize the
\npossibility of damage. The drainage system for watering the plants with the
\nhelp of dipper is required. The watering of rose plants are also a technical
\nmethod to avoid excessive watering so that the roots of the rose plants should
\nnot get damaged. The commercial greenhouse i.e. “bent canopy” is used for
\nvarious benefits so that the sun-light and the humidity level both can be
\nmaintained. For meeting the international demand, it is explained, that the
\nassessee-company adopted best measure to ensure best quality of rose.
\n6.2 Conditions of Agriculture operation – From the side of the respondentassessee
\nthere was detailed discussion about the growing of rose plants and
\nother connected agricultural operation carried out by the assessee. However,
\nthe objection of the Revenue was that the rose plants were not grown on the
\nland, therefore the generation of income was not directly connected with the
\noperation of land. Somehow we are not agreeing with the said proposition of
\nthe Revenue-department because on due consideration of the activity as
\nexplained to us, it is not justifiable to say that the growing of rose plants at all
\nis not connected with the utilization of land. It is not in dispute that the
\nagricultural land was acquired by the assessee from agriculturists. It is also
\nnot in disputed that mother plats are always been grown on the agricultural
\nland.
\n:46:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nAs far as ingredients of basic operation is concerned the assessee’s case is that
\nthe technology deployed is (i) use of soil and operation on soil (ii) use of
\nparticular soil type contents i.e. coco peat, manure, etc. present in the soil, (iii)
\ndrainage system as over watering harms the roots as well as quality (iv)
\nbending shoots for maximizing the quality of roses, and (v) pest and diseases
\ncontrol for providing protection to roses. Therefore we hold that the activity
\nwhich is connected with the land cultivation , such as ploughing of field,
\nleveling of field, sowing of seed in the ploughed and leveled field, growing of
\nplants, as case the may be, plantation, manuring, watering, weeding-out of
\nweeds, so and so forth. These agriculture operations are said to be ‘basic
\ncultivation activity’ and thereafter an agriculturist has to perform ‘subsequent
\nagriculture operation’, namely tending of grown plants, pruning, cutting or
\nshaping and finally harvesting of crop. We have to clarify, as held by few
\nhonourable courts as well, that the subsequent operations ought to be a
\ncontinuation of basic Agriculture operation. The fundamental requirement is
\nthat it should remain connected with the basic agriculture operation.\u201d
\n13.5. We agree with this view of the Tribunal. The process
\nfollowed in the case of Best Roses Biotech (P.) Ltd., (supra) in similar to
\nthe process followed by the assessee.
\n13.6. Hence, the view of the courts was that the income in
\nquestion was agricultural income and the explanation only acknowledges
\nthis fact. We should not take a \u2018pedantic\u2019 view on this issue. The view of
\nthe legislature is more expansive and purposive than the view of the
\ncourts.
\n13.7. In view of the above discussion, we conclude that \u201csoil\u201d, even
\nwhen separated from land and placed in trays, pots, containers, terraces,
\ncompound walls etc., continues to be a specie of land and hence \u201cland\u201d for
\nthe sole purpose of determining whether activity performed on such land
\nis for production of an agricultural product.
\n:47:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\n14. The second issue is whether mushroom is a \u201cfungi\u201d and not
\n\u201cvegetable\u201d. The Revenue relied on the word \u2018spawn\u2019 while the assessee
\nrelied on the word \u2018mycelium\u2019. The definitions are extracted for ready
\nreference:
\nSPAWN:
\nThe word “Spawn” is defined by Collins dictionary as the Spawn is a
\nsoft, jelly-like substance containing the eggs of fish, or of animals such as
\nfrogs, When fish or animals such as frogs spawn, they lay their eggs.
\n1. To produce or deposit (eggs, sperm, or young)
\n2. To bring forth or be the source of (esp. something regarded with
\ncontempt and produced in great numbers)
\n3. Horticulture to plant with spawn, or mycelium noun
\n4. The mass of eggs or young produced by fish, mollusks, crustaceans,
\namphibians, etc.
\n5. Something produced, esp. in specif., numerous offspring or progeny great
\nquantity; usually contemptuous
\n6. The mycelium of fungi, esp. of mushrooms grown to be eaten
\nThe word “spawn” is defined by Random House Dictionary – The mass of eggs
\ndeposited by fishes, amphibians, mollusks, crustaceans etc
\n2. Bot, the mycelium of mushrooms, esp of the species grown for the market
\n3. To plant with mycelium
\n:48:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nMycelium:
\nThe word \u201cMycelium\u201d is defined by Random House Dictionary as \u2013
\nThe vegetative part or thallus of the fungi, being composed of one or more
\nfilamentous elements, or hyphae.
\n14.1. Ld. Counsel for the assessee submitted that mycelium is a
\nvegetative part of the fungi. Ld. Standing Counsel submits that vegetative
\npart does not mean that the classification is vegetable and it only refers
\nto the reproductive feature of the \u201cfungi\u201d. \u201cA mushroom or toadstool, is
\nthe fleshy, spore-bearing fruiting body of a fungus, typically produced
\nabove ground on soil or on its food source and the scientific classification
\nis Kingdom; Fungi, Division. Basidiomycota\u201d (Wikipedia).
\n14.2. On a careful consideration of the material on record, we
\nconclude that mushroom, is not a \u2018vegetable\u2019 \u2018plant\u2019 or an \u2018animal\u2019 but a
\n\u2018fungus\u2019.
\n14.3. The contention of the assessee is that, what is produced by
\nperforming basic operations on the soil, is an agricultural product, even
\nthough the product is not a \u2018plant\u2019 or the \u2018flower\u2019 or a \u2018vegetable\u2019 or a
\n\u2018fruit\u2019. It was emphasized that the nature of the product is irrelevant as
\nfar as it is produced by performing some basic operations on the soil.
\n14.4. In the case of CIT vs. Raja Benoy Kumar Sahas Ray (supra),
\nas already stated, it is laid down that the \u201cproduct\u201d should be \u201craised on
\nthe land\u201d by \u201cperforming some operation on land by expenditure of
\n:49:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nhuman skill and labour\u201d and that the \u201cproduct\u201d should be \u201cof some utility
\nfor consumption, for trade and commerce\u201d.
\n14.5. The term \u201cproduct\u201d is defined as:
\na) an article of substance i.e. manufactured or refined for sale.
\nb) A thing or person that is the result of an action or process.
\nc) A product in modern times is also defined as a item or thing which
\nis offered for sale. A product can be a service or an item. It can be
\nphysical or in virtual or cyber form.
\n14.6. It is clear that we cannot restrict the word \u201cproduct\u201d to
\n\u2018plants\u2019, \u2018fruits\u2019, \u2018vegetables\u2019 or such botanical life only. The only condition
\nis that the \u201cproduct\u201d in question should be raised on the land by
\nperforming some basic operations. Mushroom produced by the assessee
\nis a product. This product is raised on land\/soil, by performing certain
\nbasic operation. The product draws nourishment from the soil and is
\nnaturally grown, by such operation on soil which require expenditure of
\n\u201chuman skill and labour\u201d. The product so raised has utility for
\nconsumption, trade and commerce and hence would qualify as an
\n\u201cagricultural product\u201d the sale of which gives rise to agricultural income.
\n14.7. Mushroom, like vegetables and other crops or plants are
\ngrown on soil\/land and are always attached to the soil until harvested.
\nThey draw their nourishment from the soil only. The product mushroom
\ndoes not arise from any secondary agricultural operation. Unlike in the
\ncase of CIT vs. Kokine Dairy (1938) 6 ITR 502, relied on by the Ld.AO it
\n:50:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\ncannot be said that production of mushroom is remotely connected with
\nland. This product arises from land and is attached to land during growth
\nand thereafter, just like \u2018plants\u2019 or a \u2018crop\u2019. Comparison made by the Ld.AO
\nwith sale of silk cocoons by relying on the judgment in the case of
\nK.Lakshmansa & Co. vs. CIT [1981] 128 ITR 283 (Kar.), is wrong, as on
\nfacts silkworms feed on mulberry leaves and are not products which are
\nraised from land. Mulberry leaves which are product arising from land,
\nare fodder to silk worms.
\n14.8. Hence, we conclude that Mushroom on the facts and
\ncircumstances of this case is an agricultural product raised from land.
\n15. The third issue is whether agricultural production done
\nunder \u201ccontrolled conditions\u201d, results in the \u2018product\u2019 so raised not being
\na \u2018product from agricultural activity\u2019.
\n15.1. Each and every agricultural operation involves certain
\nprocedures and protocols. Certain conditions are necessary for natural
\ngrowth of the product. The degree of control and the type of scientific
\ninput differs from product to product. The type of soil to be used, the
\nnature of agricultural operations to be undertaken, material required to
\nbe used to enrich the soil, the timing of sowing, transplanting, harvesting
\netc., the quantity and quality of inputs such as water, fertilizer, pesticides
\netc. to be used and the timing at which they have to be used, are all
\ncontrols that a farmer exercises in every type of agricultural activity.
\nThere can be no agriculture without controlling the conditions of
\nproduction by human intervention. Just because the degree of control of
\n:51:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nthe conditions are greater in some cases, as compared to others, the
\nproduct produced out of such process would not cease to be an
\nagricultural product. The degree of control is irrelevant in arriving at a
\nconclusion on this issue. With the advancement of technology, every
\naspect of production is monitored and controlled, so as to obtain
\noptimum use of the produce. This is true with the use of greenhouse
\ntechnologies.
\n15.2. The ITAT Pune Bench in the case of Asst. CIT v. KF Bio Plants
\n(P.) Ltd. [Pune Bench \u2018A\u2019, ITA No. 1110\/PN\/2011] held that the nature of
\nagricultural income would not change merely because agricultural
\noperation was carried out in a greenhouse under a controlled
\nenvironment. The assessee in that case was engaged in the business of
\nplant floriculture and tissue culture, and claimed exemption of income as
\nbeing agricultural income under section 10(1) of the Act. The A.O.
\ndisallowed the exemption on the ground that basic operation was done in
\na greenhouse. The ITAT held that the involvement of a greenhouse and
\ncontrolled environment would not change the nature of agricultural
\nincome. We endorse this view.
\n15.3. The ITAT Ahmedabad Bench \u2018A\u2019 decision in the case of DCIT
\nv. Best Roses Biotech (P.) Ltd., (supra) has analyzed the advanced
\nmechanism of growing rose plants in a controlled environment and held
\nas under:
\n\u201c7.2 Considering the advancement of technology and the use of the advanced equipment
\nin cultivation coupled with the conventional cultivation method put together, it has to be
\nheld that the operation carried out by the assessee was agricultural operation in nature.
\n:52:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\nTherefore, the income in question was an agricultural income. It cannot be included in
\ntotal income being with the ambits of the provisions of section 10(1).\u201d
\nWe concur with this view.
\n15.4. With the advancement of modern technology, we find that
\nmost of the crops, fruits, vegetables and flowers are being grown in
\ncontrolled conditions, in green houses and in pots. In these advanced
\nscientific agricultural techniques, soil is removed from the land and is
\nplaced in different containers such as pots, trays and stands etc. and
\nagricultural operations are performed on them to yield the desired
\nresults of production of products which have some utility.
\n15.5. In view of the above discussion we hold that, just because
\nmushrooms are grown in controlled conditions it does not negate the
\nclaim of the assessee that the income arising from the sale of such
\nmushrooms is agricultural income.
\n16. We now discuss the other contentions raised by the parties.
\n\uf095\uf020The assessee submits that the Govt. authorities and Financial
\nInstitutions treated growing of mushrooms as agriculture.
\n\uf095\uf020That for the purpose of Mushroom cultivation, the Assessee
\nCompany borrowed funds from State Bank of Hyderabad with
\nguidance provided by National Bank for Agriculture and Rural
\nDevelopment (NABARD) and the loans sanctioned are agricultural
\nloans.
\n:53:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\n\uf095\uf020NABARD conducted survey and observed that mushrooms are
\nfruiting bodies of some members of lower group of plants. They are
\nfleshy spore bearing structures containing numerous spores which
\nare functionally similar to seeds of higher plants. They are used in
\nreproduction of mushrooms. After conducting the studies, the
\nNABARD certified Mushroom cultivation as an agricultural
\noperation and kept the same under “agricultural” segment.
\n\uf095\uf020That for the purpose of commencement of production activity, the
\nassessee requires a certification from the Ministry of Commerce
\nand Industry, Govt. of India. The said Ministry also categorized
\nactivity as “other agricultural industry”. The assessee is also
\ngranted licence by the Fruit products Order, 1995 by the Ministry
\nof Food Proceedings Industries, Government of India .
\n\uf095\uf020The the Central Excise Department classified in chapter 7 that the
\nMushrooms are Edible Vegetables and did not levy any tax on the
\nassessee.
\n\uf095\uf020The Ministry of Agriculture, Government of India categorized
\nMushroom cultivation as the agricultural operation. Various
\nUniversities in India and abroad also treated the Mushroom
\ncultivation as an Agricultural Operations.
\n16.1. The Ld. Standing Counsel submits that, the view of various
\nGovernment and Financial Institutions, should not influence the
\ninterpretation of a statute. She submits that the statute has to be
\n:54:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\ninterpreted based on the language used therein and not based on views
\nof universities and other organisations.
\n16.2. Words of the statute, when not defined, have to be construed
\nand understood in their popular sense and according to their ordinary
\nmeaning. No doubt, statute cannot be interpreted based on the views of
\ndifferent Governmental Authorities and Financial Institutions, as their
\npurpose and intent would be different, from the purpose and intent of the
\nenactment in question. But the manner in which other Government
\nauthorities and agencies views this issue, can be gathered and understood
\nfrom this material. A common man\u2019s view, as expressed by the
\norganisations, have some use in coming to a conclusion on this issue. It
\nwould not be appropriate to hold that different arms of the Government
\nhave contrary views on the same issue.
\n16.3. Now we consider the argument of the Ld. Standing Counsel
\nby placing reliance on Section 80JJA of the Act. The assessee relies on
\nexplanation 3 inserted in Section 2(1A) of the Act. Much water has flown
\nsince the introduction and repeal of Section 80JJA. With the passage of
\ntime the views change. We are of the opinion that the conclusion on this
\nissue cannot be guided by this Section 80JJA of the Act.
\n16.4. The order of the Bangalore Bench of the Tribunal in the case
\nof Blue Mountain vs. ITO (1985) 14 ITD 254 (Bang.), does not discuss the
\nissue in question and hence not relevant. The Pune Bench of the Tribunal
\nin the case of ACIT vs. Malhotra Mukesh Satpal (2008) 115 ITD 467
\n:55:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\n(Pune), is on the issue of levy of penalty u\/s 271(1)(c) and hence not
\nrelevant. The decision of the Chandigarh Bench of the Tribunal in the case
\nof Rachna Dogra (supra) is also not relevant, as the observations on the
\nissue in question are one of \u2018sub silentio\u2019.
\n16.5. The Chandigarh \u2018A\u2019 Bench of the ITAT in the case of Chander
\nMohan v. ITO in ITA No. 389.377\/Chd\/2012, order dt. 28.10.2014, in our
\nview, does not lay down the correct law in the facts and circumstances of
\nthe case. In any event, the type of mushroom grown in that case and the
\nplace at which it was grown and the fact that the process of growth was
\nnot properly explained. As the division Bench has not agreed with this
\nview of the Pune Bench of the ITAT, this issue was referred to this larger
\nBench.
\n16.6. Hence as basic operations are performed by expenditure of
\nhuman skill and labour on land by the assessee, which results in the
\nraising of the \u2018product\u2019 called \u201cEdible white button mushroom\u201d on the
\nland and as this product has utility for consumption, trade and commerce,
\nthe income arising from the sale of this product is agricultural income and
\nhence exempt u\/s 10(1) of the Act.
\n16.7. Thus we uphold the order of the Ld. CIT(A) on this issue.
\n17. In view of the above discussion, we answer the question
\nreferred to us by the Hon\u2019ble President in the affirmative, in favour of the
\nassessee.
\n:56:
\nITA Nos. 1015 to 1018\/Hyd\/2015
\nC.O. Nos. 53 to 56\/Hyd\/2015
\n18. Before parting, we place on record our appreciation for the
\nexcellent contribution of the Ld. Standing Counsel Ms. K. Mamata
\nChoudary and the Ld. Counsels for the assessee Shri S. Rama Rao and Shri
\nK. Gopal.
\n19. In the result, all the appeals of the revenue and crossobjections
\nof the assessee are dismissed for all the four assessment years.
\nOrder pronounced in the open court on 9th July, 2018
\nSd\/- Sd\/- Sd\/-
\n(D. MANMOHAN) (P. MADHAVI DEVI) (J. SUDHAKAR REDDY)
\nVICE PRESIDENT JUDICIAL MEMBER ACCOUNTANT MEMBER<\/p>\n","protected":false},"excerpt":{"rendered":"
It is clear that we cannot restrict the word \u201cproduct\u201d to \u2018plants\u2019, \u2018fruits\u2019, \u2018vegetables\u2019 or such botanical life only. The only condition is that the \u201cproduct\u201d 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 \u201chuman skill and labour\u201d. The product so raised has utility for consumption, trade and commerce and hence would qualify as an \u201cagricultural product\u201d the sale of which gives rise to agricultural income.<\/p>\n