Cultivation of Mushroom, although in controlled condition using trays placed above land, is an agricultural activity and income derived there from is exempt u/s. 10(1).
The assessee company was engaged in growing Edible White Button Mushrooms. The assessee claimed the income from the said activity as exempt on the ground that same is Agricultural Income. The AO held that as Mushrooms were grown in ‘growing rooms’ under ‘controlled conditions’ in racks placed above land and using compost manure, which is not land and hence the said activity was not an agricultural activity. On appeal, CIT(A) granted the exemption.
On appeal by Revenue, the Special Bench of the Hon’ble ITAT supported the view of assessee. The ITAT-SB observed that ‘soil’ is a part of the land, which is part of earth. Mushrooms are grown on ‘soil’. Certain basic operations are performed on it, which require ‘expenditure of human skill and labour’ resulting in raising the mushrooms. When soil is placed on trays, it does not cease to be land and when operations are carried out on soil, it would be agricultural activity carried upon land itself.
Further, on the question whether mushroom is ‘plant’ or a ‘fungus’, the ITAT-SB observed that one cannot restrict the word ‘product’ to ‘plants’, ‘fruits’, ‘vegetables’ or such botanical life only. For claiming exemption the only condition was that the “product” in question should be raised on the land by performing some basic operations. Mushrooms produced by the assessee are a product.
This product is raised on land/soil, by performing certain basic operations. The product draws nourishment from the soil and is naturally grown, by such operation on soil, which require expenditure of ‘human skill and labour’. Further, the product so raised has utility for consumption, trade and commerce and hence would qualify as an ‘agricultural product’, the sale of which gives rise to agricultural income exempt u/s. 10(1) of the Act.