DCIT, Circle-2(1), Hyd, Hyderabad V. Inventaa Chemicals Ltd., Hyd, Hyderabad

CO 54/HYD/2015

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3948 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 11-09-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K MAMATA CHOUDARY SR
• Assessee Lawyers: I T DEPT SHRI S RAMA RAO; K GO
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation
• Section: 133A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SPECIAL (B) BENCH, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT, SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1015/HYD/15 2008-09 DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD M/S. INVENTAA INDUSTRIES PRIVATE LIMITED, (EARLIER KNOWN AS M/S. INVENTAA CHEMICALS LIMITED) HYDERABAD [PAN: AAACI4539B] 1016/HYD/15 2010-11 1017/HYD/15 2011-12 1018/HYD/15 2012-13 C.O. NO. A.Y. CROSS-OBJECTOR RESPONDENT 53/HYD/15 IN ITA NO. 1015/HYD/15 2008-09 M/S. INVENTAA INDUSTRIES PRIVATE LIMITED, (EARLIER KNOWN AS M/S. INVENTAA CHEMICALS LIMITED) HYDERABAD [PAN: AAACI4539B] DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD 54/HYD/15 IN ITA NO. 1016/HYD/15 2010-11 55/HYD/15 IN ITA NO. 1017/HYD/15 2011-12 56/HYD/15 IN ITA NO. 1018/HYD/15 2012-13 FOR REVENUE : MS. K. MAMATA CHOUDARY, SR. STANDING COUNSEL FOR I.T. DEPT., FOR ASSESSEE : SHRI S. RAMA RAO, & SHRI K. GOPAL, ARS :2: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 DATE OF CONCLUDING THE HEARING : 25-06-2018 DATE OF PRONOUNCEMENT : 09-07-2018 O R D E R PER J SUDHAKAR REDDY, AM: THE HONBLE PRESIDENT ITAT, CONSTITUTED THIS SPECIA L BENCH TO DECIDE THE FOLLOWING QUESTION AND APPEALS VIDE ORDE R DT.25-07-2017 MERELY BECAUSE INSTEAD OF HORIZONTAL USE ON SOIL, VERTICAL SPACE IS USED, DOES THE GROWTH OF MUSHROOMS STAND APART FROM AGRICULTURAL OPERATIONS? AT THE TIME OF HEARING, BOTH THE PARTIES OBJECTED TO THE QUESTION FRAMED. THE LD. COUNSEL FOR THE ASSESSEE, SHRI S. R AMA RAO, SUBMITTED THAT THE QUESTION, AS FRAMED, DOES NOT ARISE FROM THE GR OUNDS RAISED BY THE REVENUE IN THESE APPEALS. THE LD. SENIOR STANDING C OUNSEL, MS. K.MAMATA CHOUDARY, SUBMITTED THAT THE QUESTION DOES NOT REFL ECT 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 QUE STION. WE ARE IN AGREEMENT WITH THE REFRAMED QUESTION SUGGESTED BY B OTH THE PARTIES. THIS RE-FRAMED QUESTION WAS REFERRED TO THE HONBLE PRESIDENT, ITAT, WHO VIDE HIS ORDER DT. 10 TH 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, 2 011-12 AND 2012- 13:- :3: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 THE QUESTION REFERRED IS AS FOLLOWS: 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? FACTS IN BRIEF: 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS 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 23 RD SEPTEMBER, 2013, AT THE MUSHROOM GROWING UNIT OF THE ASSESSEE-COMPANY LOCAT ED AT KALLAKAL VILLAGE, TOOPRAN MANDAL, MEDAK DISTRICT, TELANG ANA. THE LD.ASSESSING OFFICER (AO) RECORDS THAT THE SURVEY WAS CONDUCTED TO VERIFY THE PROCESS OF MUSHROOM GROWING BY THE ASSESSEE-COMPANY. DURIN G THE COURSE OF SURVEY, STATEMENTS WERE RECORDED FROM MR. K. JAGADI SH, VICE PRESIDENT (OPERATIONS) AND MR. C. RAJESH, ANOTHER VICE PRESID ENT OF THE COMPANY. DURING THE COURSE OF SCRUTINY PROCEEDINGS, IN REPLY TO THE QUERIES RAISED BY THE AO, THE ASSESSEE MADE VARIOUS SUBMISSIONS. T HE 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 UN DER: :4: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 8. THE GIST OF THE SUBMISSIONS OF THE ASSESSEE IS AS UNDER: WHETHER CULTIVATION OF MUSHROOMS IS AGRICULTURE OR NOT IS A QUESTION OF FACT. OPERATIONS ARE CONDUCTED ON LAND WHICH IS AGRICULTURA L LAND AND THE OPERATIONS ARE AGRICULTURE IN NATURE. MUSHROOM IS A NUTRITIOUS VEGETABLE. THE SPAWN IS GROWN ON SOIL. THE OPERATIONS ARE AKIN TO NURSERY WHICH HAS BEEN RECOG NIZED BY THE ACT AS AGRICULTURE BY INSERTION OF EXPLANATION 3 TO SEC TION 2(1A). VARIOUS GOVERNMENT AUTHORITIES, BANKS/FIS, WORLD ORG ANIZATIONS AND FOOD ORGANIZATIONS, EXCISE DEPARTMENT AND OTHERS TREAT MU SHROOMS AS VEGETABLES. MUSHROOM GROWTH IS A NATURAL AGRICULTURAL ACTIVITY A ND ASSESSEE IS ONLY A FACILITATOR. THEREFORE, THE DECISION OF THE APEX COUR T 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 PRODUC T CAN BE PRODUCED ONLY THROUGH NATURAL PROCESS AND THE FACILITIES PROVID ED BY HUMAN EFFORT IS NOT RELEVANT AND THE PRODUCTION WOULD ALWAYS REMAIN AS NATURAL PRODUCT AND CANNOT BE ATTRIBUTED TO ANY OTHER PROCESS OR ACT IVITY ASSOCIATED OR UNDERTAKEN BY HUMAN EFFORT. THE TERM LAND AND SOIL ARE INTERCHANGEABLE AND SO IL IS NOTHING BUT LAND. THE ASSESSEE ALSO QUOTES DICTIONARY DEFINITIONS OF L AND AND SOIL. 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. :5: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 2.1. FINDINGS OF THE A O : THE FINDINGS OF THE LD. ASSESSING OFFICER ( A.O.) A RE SUMMARISED AS FOLLOWS: 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. 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 EXPENDITUR E OF HUMAN SKILL AND LABOUR, RENDERS THE PROFIT DERIVED FROM THE PRODUC T AGRICULTURE INCOME WHICH WOULD BE EXEMPT U/S. 2(1A) OF THE ACT. IN TH E 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 W HEN THE ASSESSEE HAS NOT PERFORMED THE BASIC OPERATIONS ON LAND, THE INC OME DERIVED WAS HELD NOT TO BE AGRICULTURE INCOME. SOME OF SUCH INSTANCE S ARE INCOME FROM COCONUT THOPES, INCOME FROM SALE OF COCOONS, INCOME FROM SALE OF EUCALYPTUS OIL ETC. 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 :6: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 PERFORMING BASIC OPERATIONS ON THE LAND, THE SAME C OULD NOT BE CONSTRUED AS AGRICULTURE INCOME. 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 A ND 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 A ND UNDERSTANDING OF THE LEGISLATURE IS THAT GROWING OF MUSHROOMS IS NOT IN THE NATURE OF AGRICULTURE INCOME BUT IS RECKONED AS INCOME FROM B USINESS. 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 INC OME AND HENCE EXEMPT FROM TAX. THEREFORE, NO FURTHER DEDUCTION W AS REQUIRED, ON THE GROUND THAT THIS IS FAR-FETCHED AND ILLOGICAL. E. THERE IS NO DISPUTE REGARDING THE VARIOUS PROCES SES MENTIONED IN THE LETTERS DT. 10-01-2014 AND 17-02-2014 WRITTEN B Y THE ASSESSEE SETTING OUT THE VARIOUS STAGES INVOLVED IN THE GROWING OF M USHROOMS. IT IS IMPORTANT TO NOTE THAT NO OPERATIONS ARE CARRIED OU T ON LAND. IN THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE, WHICH RA N INTO SEVERAL PAGES, THERE IS NO CATEGORICAL ASSERTION BY THE ASSESSEE T HAT SOME OF THE BASIC OPERATIONS ARE CARRIED OUT ON LAND. ON THE RELIANCE PLACED BY THE ASSESSEE :7: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 ON THE DEFINITION OF LAND AS GIVEN IN THE BLACKS 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. F. REGARDING EXEMPTION OF INCOME DERIVED FROM SAPLI NGS OR SEEDLING GROWN IN SOIL IN POTS, HE HELD THAT THIS IS A DEEMI NG 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. G. MUSHROOM CULTIVATION IS NOT AGRICULTURE AND FA LLS UNDER THE CATEGORY OF FUNGI CULTURE. REFERENCE WAS MADE TO INFORMATION AVAILABLE IN WIKIPEDIA, ON THE WEBSITE HTTP://WWW.AMERICANMUS HROOM.ORG / AGARICUS.PDF. HE HELD THAT MUSHROOM IS NOT A VEGETABLE AS ARGUED BY THE ASSESSEE, BUT IS A FUNGUS. IN OUTDOORS, MUSHROOMS G ROW ON WOOD AND THE ACTIVITY IS NOT AKIN TO THAT OF A NURSERY. H. THE CLAIM OF THE ASSESSEE THAT IT OWNS 33 ACRES OF LAND IS NOT IN DISPUTE BUT THE MUSHROOM GROWING ACTIVITY IS NOT PE RFORMED ON THIS LAND. WHEN THE ASSESSEE IS IN POSSESSION OF 33 ACRES OF A GRICULTURAL LAND, IT WAS NOT NECESSARY TO PURCHASE BALLCLAY AT RS. 1 PER KG FROM M/S. NYVELLI :8: 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 MUS HROOMS. I. CLASSIFICATION BY OR VIEWS OF VARIOUS GOVERNMENT AND PUBLIC SECTOR AGENCIES ON WHETHER GROWING OF MUSHROOM IS AN AGRIC ULTURAL ACTIVITY OR NOT IS OF NO CONSEQUENCE AND DOES NOT HELP THE ASSE SSEE IN CLAIMING EXEMPTION U/S. 10(1) OF THE ACT. J. THE STATEMENTS RECORDED FROM THE TWO SENIOR FUNC TIONARIES OF THE ASSESSEE-COMPANY PROVES THE FACT THAT NO AGRICULTUR AL OPERATIONS WERE CARRIED OUT ON THE LAND BY THE ASSESSEE, LET ALONE BASIC OPERATIONS ON LAND. EVEN FROM THE DESCRIPTION OF THE ACTIVITY, AS EVIDE NCED 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 REMOTE LY CONNECTED WITH LAND. 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. L. THE STATEMENT RECORDED FROM THE MANAGING DIRECTO R OF THE ASSESSEE-COMPANY DEMONSTRATES THAT THE MAIN LAYER B ED 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 :9: 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 N OT 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 MUSHROOM S IN QUESTION ARE GROWN UNDER CONTROLLED CONDITIONS. 2.2. AT PARA 40 & 41, THE LD. ASSESSING OFFICER CO NCLUDED AS FOLLOWS: 40. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT EIT HER 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 P ITH IS USED AS TOP DRESSING FOR PROVIDING MOISTURE TO THE MUSHROOM WHICH A RE ALREADY SPROUTING OR GROWING IN THE COMPOST. HENCE, THE OPE RATIONS 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 4 66]. EVEN THE EXPLANATION 3 UNDER SECTION 2(1A) IS NOT OF ANY HEL P TO THE ASSESSEE AS NO OPERATIONS ARE CARRIED OUT BY IT ON LAND OR IN S OIL. 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 I N THE JUDGMENT SUPRA. 41. IN VIEW OF THE DETAILED REASONS MENTIONED ABOVE , I HOLD THAT INCOME DERIVED BY THE ASSESSEE FROM GROWING OF MUSHRO OMS 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/- 3. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE LD.CIT(A) CHALLENGING, FOR ALL THE ASSESSMENT YEARS , THE FINDINGS OF THE :10: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 ASSESSING OFFICER THAT INCOME DERIVED FROM PRODUCTI ON OF MUSHROOM IS NOT AGRICULTURAL INCOME. IT ALSO CHALLENGED THE REO PENING 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 CHALLENG ED FOR ALL THE FOUR ASSESSMENT YEARS. 3.1. BEFORE THE LD.CIT(A) ASSESSEE REITERATED THAT GROWING OF MUSHROOM IS AN AGRICULTURAL ACTIVITY. IT WAS SUBMI TTED THAT, MUSHROOMS ARE GROWN MANUALLY ON THE LAND IN A SPECIFIED ATMOS PHERE. IT WAS CONTENDED THAT THE ASSESSEE WAS PRODUCING A NUTRITI OUS VEGETABLE CALLED MUSHROOM WHICH GROW OVER A PERIOD OF 1 MONTHS ON CERTAIN TYPES OF SOIL. A CHART GIVING COMPARISON BETWEEN GROWING OF MUSHROOM AND OTHER CROPS WAS FURNISHED. RELIANCE IS PLACED ON THE JUD GMENT 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 NA TURAL AND BIOLOGICAL PROCESS AND HENCE MUSHROOMS ARE NOT ARTICLES OR THINGS. RELIANCE WAS PLACED ON THE VIEWS OF VARIOUS GOVERNM ENTAL DEPARTMENTS SUCH AS NABARD, STATE BANK OF HYDERABAD, MINISTRY O F COMMERCE AND INDUSTRY, CENTRAL EXCISE DEPARTMENT AND MINISTRY OF AGRICULTURE ON THE PROPOSITION THAT GOVERNMENT OF INDIA HAS TREATED MU SHROOM PRODUCTION AS AN AGRICULTURAL PRODUCTION. RELIANCE WAS PLACED ON A NUMBER OF JUDGMENTS IN SUPPORT OF THE PROPOSITION OF LAW RELI ED UPON BY THE :11: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 ASSESSEE. THE FINDINGS OF THE LD. AO WERE SOUGHT T O BE REBUTTED BY THE ASSESSEE IN ITS SUBMISSIONS BEFORE THE LD.CIT(A). 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 CULTUR E, RELIED ON A REPORT ISSUED BY PENN STATE COLLEGE OF AGRICULTURAL SCIENCES WITH REGARD TO BASIC PROCEDURES FOR MUSHROOM GROWING, WHEREIN TWO DIFFER ENT METHODS OF GROWING MUSHROOMS ARE GIVEN. 5. FINDINGS OF THE LD.CIT(A) : AFTER CONSIDERING THE RIVAL SUBMISSIONS, THE LD. FI RST APPELLATE AUTHORITY HAS HELD AS FOLLOWS: A. THE REOPENING OF ASSESSMENTS IS VALID IN LAW. B. HE RELIED ON THE DEFINITION OF LAND AND SOIL GI VEN IN THE BLACKS LAW DICTIONARY AND IN RANDOM HOUSE DICTIONARY AND H ELD THAT THE WORD LAND INCLUDES ANY SOIL, AND HENCE THE PR EPARED SOIL IS LAND. THAT SOIL IS THE BASIS FOR PRODUCTION OF MUSH ROOM AS INITIAL MUSHROOMS SPAWN IS PREPARED AND THE SPAWN IS THEN C ULTURED IN A SIMILAR TYPE OF PREPARED SOIL, TO BE USED AS SEED F OR CULTIVATION OF MUSHROOM. THEREAFTER THE SAME IS REMOVED FROM THE S OIL AND IS :12: 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 TR AYS ARE KEPT VERTICALLY ON THE LAND AND THE WATERING OF THE SOIL IS DONE THROUGH COIR PITH TO MAINTAIN THE REQUIRED MOISTURE. THE L D. CIT(A) RELIED ON THE LITERATURE PUBLISHED BY THE DIRECTOR OF MUS HROOM RESEARCH OF INDIAN COUNCIL OF AGRICULTURAL RESEAR CH (ICAR) AND CAME TO A CONCLUSION THAT USAGE OF SOIL IN THESE TR AYS CAN BE CONSIDERED AS USAGE OF LAND. THE LD.CIT(A) ALSO ST ATED THAT EVEN FOR CULTIVATION OF OTHER CROPS, THE LAND IN THE FOR M OF GROUND CANNOT BE USED AND THAT ONLY THE UPPER LAYER OF THE SOIL I S TO BE PREPARED FOR TILLING, PLOUGHING, WATERING AND MANURING. AS PREPARATION OF SOIL IS REQUIRED FOR PRODUCTION OF MUSHROOM, HE CON CLUDED THAT EDIBLE MUSHROOM IS GROWN ON LAND. 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 ASSESSEES CASE. 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 T O WHETHER THE PROCESS OF PRODUCTION IS AGRICULTURE OR NOT AND WHE THER THE PRODUCE GROWN IS PLANT OR FUNGI ARE NOT RELEVAN T AND THAT THE RELEVANT FACTOR TO BE DETERMINED IS THE PROCESS OF PRODUCTION. :13: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 E. HE HELD THAT THE WORD AGRO MEANS LAND AND THIS DEFINITION INCLUDES SOIL WHICH MEANS ALL TYPES OF SOILS. THE P ROCESS OF ENRICHING THE SOIL BY ADDING FERTILIZERS AND WAST AGES ETC., IS CULTURE OF THE SOIL AND WHEN THE SOIL IS USED FOR PRODUCTION OF EDIBLE PRODUCT, IT IS CALLED AS AN AGRICULTURAL PRO DUCT. F. THE REFERENCE TO PROVISIONS OF SECTION 80JJA BY THE AO IS NOT RELEVANT AS THIS PROVISION OF LAW IS NO LONGER IN E XISTENCE. G. ON THE REFERENCE TO THE MATERIAL AVAILABLE IN WIKIP EDIA BY THE ASSESSING OFFICER, THE LD. CIT(A) HELD THAT THOUGH SEVERAL THOUSANDS OF SPECIES OF MUSHROOMS ARE THERE, ONLY T HOSE WHICH ARE GROWN ON SOIL ARE EDIBLE. 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 CONVEN TIONAL METHOD OF PRODUCTION IS GIVEN A GO BY AND ARTIFICIA L PRODUCTION IS INTRODUCED, IT WOULD NOT CHANGE THE CHARACTER OF PR ODUCTION WHICH IS NATURAL. I. THE LD.CIT(A) OBSERVED THAT JUST BECAUSE THE ASSESS EE-COMPANY IS USING THE LAND VERTICALLY BY USING LARGE TRAYS, FOR PRODUCING MUSHROOM, BY ADOPTING A NATURAL AGRICULTURAL PROCES S AND BY :14: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 CULTIVATING THE SOIL, IT CANNOT BE SAID THAT LAND I S 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 I NGREDIENTS OF AGRICULTURAL OPERATIONS ARE EMBEDDED IN THE PRODUCT ION OF MUSHROOM AND THE ENTIRE ACTIVITY IS SIMILAR TO THE PRODUCTION OF ANY OTHER VEGETABLE AND TO THE PROCESS OF ANY OTHER AGRICULTURAL PRODUCE. J. THE DECISION OF THE BANGALORE BENCH OF THE ITAT IN THE CASE OF BLUE MOUNTAIN FOOD PRODUCTS LTD., [14 ITD 254] IS NOT RE LEVANT, 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 A ND THAT A DECISION WITH REFERENCE TO A SECTION WHICH WAS LATER REPEALE D, CANNOT BE A PRECEDENCE. K. THE VIEWS OF VARIOUS GOVERNMENT AUTHORITIES AND FIN ANCIAL INSTITUTIONS, WHEREIN MUSHROOM IS TREATED AS A VEGE TABLE IS RELEVANT FOR THE PURPOSE OF DETERMINING THE ISSUE. L. HE RELIED ON VARIOUS DECISIONS OF THE HON'BLE SUPRE ME COURT FOR THE PROPOSITION THAT INCENTIVE PROVISIONS HAVE TO BE LI BERALLY :15: 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. M. HE HELD THAT THE DECISION OF THE CHANDIGARH BENCH O F THE TRIBUNAL IN THE CASE OF CHANDER MOHAN VS. ITO [52 TAXMANN.CO M 203] (CHANDIGARH- TRIB) IS DISTINGUISHABLE AS THE PROCES S 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. 6. THE LD. CIT(A) CONCLUDED THAT PRODUCTION OF MUS HROOM IS A PROCESS OF AGRICULTURAL PRODUCTION AND INCOME DERIV ED FROM SUCH A PROCESS IS AGRICULTURAL INCOME ELIGIBLE FOR EXEMPTI ON U/S. 10(1) OF THE ACT. THE LD. CIT(A) DID NOT ADJUDICATE THE GROUNDS OF TH E ASSESSEE RELATING TO ITS CLAIM OF DEPRECIATION. 7. AGGRIEVED, REVENUE HAS FILED THESE APPEALS AGAI NST THIS FINDING OF THE LD. CIT(A) THAT INCOME FROM PRODUCTI ON OF MUSHROOM IS AGRICULTURAL INCOME. THE ASSESSEE HAS FILED CROSS-O BJECTIONS FOR THE AYS. 2008-09 AND 2010-11 ON THE ISSUE OF REOPENING AND F OR ALL THE FOUR ASSESSMENT YEARS ON THE ISSUE OF CLAIM OF DEPRECIAT ION. :16: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 REVENUES SUBMISSIONS: 8. LD. SR. STANDING COUNSEL SMT. K. MAMATA CHOUDAR Y SUPPORTED THE ORDER OF THE LD.AO AND MADE DETAILED ARGUMENTS. THE BRIEF SUBMISSIONS FILED BY HER, STATED SUCCINCTLY ARE AS FOLLOWS: 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 CO MMERCIAL PURPOSES. EVEN IF CERTAIN ACTIVITIES ARE AKIN TO CU LTIVATION, IT CANNOT BE TREATED AS AN AGRICULTURAL INCOME. 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. THE RELIANCE PLACED BY THE ASSESSEE ON THE INCOMPLE TE AND SELECTIVE DEFINITION OF 'LAND' IN BLACK'S LAW DICTI ONARY TO INCLUDE SOIL AND THEREBY EQUATING SOIL TO LAND IS MISLEADIN G, MISPLACED AND CONTRARY TO THE PRINCIPLES OF NOSCISSUR A SOCIIS . IN FACT THE DEFINITION OF 'LAND' AS OCCURRING IN THE 8 TH EDN. OF BLACK'S LAW DICTIONARY MAKES IT CLEAR THAT LAND IS THE IMMOVABLE PORTION O F THE EARTH'S SURFACE. :17: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 EXTRACT OF 'LAND 'FROM BLACK'S LAW DICTIONARY (8TH EDN.) ONLINE EXTRACT OF BALCK'S LAW 'LAND' UOIVS. V KRISHNAMURTHY 1994-2-L.W 452 (MAD HC) @PA14 (NOSCITUR A SOCIIS)- STATE OF BOMBAY AND ORS. V HOS PITAL MAZDOOR SABHA AIR 1960 SC 610 @ PA 9. THE INTERPRETATION OF 'LAND' FOR THE PURPOSES OF SE CTION 2(LA) ASSUMES IMPORTANCE AS IT GOES TO THE ROOT OF THE LE GISLATIVE COMPETENCE OF THE PARLIAMENT TO TAX SUCH INCOME. EN TRY 82 OF LIST I OF THE SEVENTH SCHEDULE READ WITH ENTRY 46 OF LIS T II OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF INDIA RESER VES THE RIGHT TO TAX AGRICULTURAL INCOME WITH THE STATES AND OUTSIDE THE PURVIEW OF THE UNION. ARTICLE 366(I) DEFINES AGRICULTURAL INCO ME TO MEAN AGRICULTURAL INCOME AS DEFINED FOR THE PURPOSES OF THE ENACTMENTS RELATING TO INDIAN INCOME TAX. CIT VS. WILLIAMSON FINANCIAL SERVICES (2008) 2 SCC 202 @PA 18-30 CONTEXTUALLY, 'LAND' UNDER THE INCOME TAX ACT IS TH E REAL IMMOVABLE PROPERTY AS CAN BE SEEN FROM ITS USE IN RELATION TO RENT, INCOME, CAPITAL ASSET, ETC. TO CLOTHE IT WITH THE INTERPRE TATION AS SOUGHT TO BE :18: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 ADVANCED BY THE ASSESSEE WOULD BE CONTRARY TO THE L EGISLATIVE USE OF SUCH WORD IN THE STATUTE. AN EXEMPTION PROVISION PRESUMES THE ABILITY TO TAX CERTAIN TYPES OF INCOME BUT SUCH INCOME BEING KEPT OUT OF THE SCO PE OF TAX LIABILITY. THE EXCLUSION OF AGRICULTURAL INCOME FRO M 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 PARL IAMENT HAVING NO POWER TO TAX AGRICULTURAL INCOME. 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 I TSELF 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 WHER E SUCH ACTIVITY IS CARRIED ON. 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 :19: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 INCOME WOULD NECESSARILY, BY STATUTORY DEFINITION, MEAN INCOME FROM LAND ACTUALLY USED FOR AGRICULTURAL PURPOSES. THE LEGISLATIVE INTENT AND UNDERSTANDING HAD EXPRES SLY BEEN STATED TO TREAT PRODUCTION OF MUSHROOMS UNDER CONTROLLED C ONDITIONS AS BUSINESS INCOME AND SOUGHT TO BRIEFLY INCENTIVISE S UCH BUSINESS BY PROVIDING FOR CERTAIN DEDUCTIONS UNDER THE THEN SEC TION 80JJA. SECTION 80 JJA EXPLANATORY NOTE TO FINANCE ACT 1979 CBDT CIRCULAR NO. 258 OF 1979 DT 14.06.1979 CONTROLLED CONDITIONS ARE COMMONLY UNDERSTOOD TO ME AN THAT THE CLIMATIC/ENVIRONMENTAL FACTORS SUCH AS HUMIDITY, TE MPERATURE, CARBON DIOXIDE, ETC. ARE CONTROLLED. EXPLANATION 3 TO SECTION 2(LA) RELATING TO INCOME F ROM SEEDS AND SAPLINGS GROWN IN NURSERIES WOULD NOT AID THE CASE OF THE ASSESSEE AS THE INCOME FROM SUCH NURSERIES HAVE BEEN INCLUDE D IN THE SCOPE OF 'AGRICULTURAL INCOME' BY WAY OF A DEEMING FICTIO N. A DEEMING PROVISION IS ENACTED FOR THE PURPOSE OF ASSUMING TH E EXISTENCE OF A FACT WHICH REALLY DOES NOT EXIST. HENCE, BY NECESSA RY COROLLARY, IT WOULD MEAN THAT THE FACT IS THAT INCOME FROM SUCH N URSERIES IS NOT AGRICULTURAL INCOME. A DEEMING FICTION CAN ONLY APP LY TO THE :20: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 PARTICULAR FICTION IT CREATES AND CANNOT BE EXPANDE D TO ANY OTHER TYPE OF ACTIVITY. EXPLANATORY NOTE TO FINANCE ACT, 2008 MANISLI TRIVEDI VS. STATE OF RAJASTHAN (2014) 14 SCC 420 @PA 14 THE ITAT HAS, THOUGH IN DIFFERENT CONTEXTS, CONSIST ENTLY 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 AG RICULTURE AND ALLOWED DEPRECIATION. BLUE MOUNTAIN V. ITO (1985) 14ITD 254 (BANG) CHANDER MOHAN VS. ITO [2014J 52 TAXMANN.COM 203 (CHANDIGARH) @ PA 12-13 ACIT VS. MALHOTRA MUKESH SATPAL [2008J 115 ITD 467 (PUNE) @ PA 3.24-3.27 THE RATIO OF JUDGMENT OF THE ITAT IN RACHNA DOGRA V S. ITO DOES NOT PERTAIN TO THE ISSUE ON HAND AND THE OBSERVATION TH EREIN AS TO PRODUCTION OF MUSHROOMS BEING AGRICULTURAL MUST THE REFORE BE ONE OF SUB SILENTIO AND THEREFORE NOT BINDING. SUB SILENTIO- MUNICIPAL CORPORATION OF DELHI V. GURNAM KAUR (1989) 1 SCC 101 @ PA 11. :21: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 THE RELIANCE SOUGHT TO BE PLACED BY THE ASSESSEE ON VARIOUS ORGANISATIONS, BANKS AND DEPARTMENTS CLASSIFICATIO N OF MUSHROOM PRODUCTION AS AGRICULTURE IS NOT TENABLE AS SUCH CL ASSIFICATIONS ARE NOT IN PARI MATERIAL WITH THAT OF THE INCOME TAX AC T AND HENCE CANNOT BE RELIED UPON. MAHESHWARI FISH SEED FARM VS. TNEB (2004) 4 SCC 705 @ PA 10- 16 THE SUBMISSION THAT THE DEFINITION OF MYCELIUM IS T HE VEGETATIVE PART OF THE FUNGI AND THEREFORE IS A VEGETABLE IS N OT TENABLE, AS WHAT IS MEANT BY VEGETATIVE PART IS THE REPRODUCTIVE PAR T OF THE FUNGUS AND NOT ITS CLASSIFICATION AS A VEGETABLE. ASSESSES SUBMISSIONS: 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: THAT MUSHROOMS ARE BROADLY OF TWO DIFFERENT CATEGOR IES, THOSE WHICH ARE EDIBLE AND THOSE WHICH ARE NOT EDIBLE. M USHROOMS GROW SPONTANEOUSLY AND AMONG THE EDIBLE MUSHROOMS, THE A SSESSEE PRODUCED A VARIETY CALLED EDIBLE WHITE BUTTON MUSH ROOMS WHICH :22: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 NORMALLY GROW SPONTANEOUSLY IN CERTAIN DISTRICTS OF ANDHRA PRADESH ON ANT HILLS. 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 A SSESSEES CASE. THAT BALLCLAY IS A TYPE OF SOIL AND THAT THIS SOIL IS CULTURED BY WAY OF ADDING PADDY STRAW, CHICKEN MANURE, AND OTHER MA NURE WHICH DEGENERATES INTO THE SOIL. THAT THE TERMS EARTH, LAND AND SOIL HAVE TO B E 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 PU RPOSE 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. REFERRING TO THE ARGUMENT OF THE LD. STANDING COUNS EL THAT LAND IS IMMOVABLE PROPERTY AND THAT THE SOIL ATTACHED TO SU CH LAND, WHEN CULTURED AND USED FOR PRODUCTION OF PLANTS IS AGRIC ULTURE, HE SUBMITTED THAT WHEN THE TOP LAYER OF THE LAND WHICH IS, SOIL BECOMES UNFIT FOR AGRICULTURE DUE TO SALINITY, BARR ENNESS OR OTHERWISE, IT IS A COMMON PRACTICE THAT SOIL IS BRO UGHT FROM RIVER :23: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 BEDS OR SOME OTHER SOURCES AND FILLED ON TOP OF THE BARREN LAND AND USED FOR CULTIVATION. TRADITIONALLY SOIL WAS BEIN G EXCAVATED FROM ONE PLACE AND TRANSPORTED AND USED FOR CULTIVATION IN CERTAIN OTHER PLACE DEPENDING ON THE REQUIREMENTS. THAT THE ARGUMENT THAT LAND IS IMMOVABLE PROPERTY A ND ONCE SOIL IS DETACHED FROM THE LAND, IT DOES NOT RETAIN THE C HARACTER OF THE LAND, IS NOT CORRECT. THE WORD LAND AS PER THE DE FINITION OF BLACKS LAW DICTIONARY, 6 TH EDITION IS SYNONYMOUS FOR SOIL AND INCLUDES MATERIAL ON THE EARTH. THAT THE WORDS SOIL AND LAND ARE USED INTERCHANGEABLY BASED ON THE REQUIREMENT. REFERENCE WAS MADE THAT THE DEFINITION OF THE WORD SOIL IN RANDOM HOUSE DICTIONARY AND THE DEFINITION OF THE W ORD AGRICULTURE IN BLACKS LAW DICTIONARY, AND IT WAS ARGUED THAT THE ACTUAL CRUX IS FOR CARRYING OUT OPERATIONS TO MAKE SOIL SUITABLE FOR GROWTH AND FOR PRODUCTION. HE SUBMITTED THAT THE SOIL/COMPOST IS PREPARED BY M IXING OF PADDY STOCK OR OTHER CELLULOSE MATERIAL, NITROGEN AND OTH ER INGREDIENTS IN SOIL AND THAT THIS IS CALLED LAND. THAT THE ENTI RE LAND HELD BY THE ASSESSEE IS USED FOR THE PRODUCTION OF MUSHROOMS, A S STRUCTURES ARE ERECTED UPON THE LAND AND TRAYS WITH SOIL HAVE BEEN PLACED IN THESE STRUCTURES, WHICH ARE USED FOR GROWING OF MUS HROOMS. THAT :24: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 ALL THE COMPONENTS LIKE STRAW ETC., DEGENERATE AND BECOME SOIL AND AS SPECIFIC TYPE OF SOIL IS REQUIRED FOR GOOD GROWT H OF MUSHROOM, CLAY IS PURCHASED BY THE ASSESSEE AND AFTER ENRICHI NG THE CLAY, IT IS USED FOR PRODUCTION OF MUSHROOMS. HE FURTHER SUBMITTED THAT THE TERM CONTROLLED COND ITIONS HAS TO BE VIEWED AS OPPOSED TO WILD GROWTH AND THAT THE CO NDITIONS OF GROWTH ARE CONTROLLED BY WAY OF SUPPLYING WATER A T THE REQUIRED TIME AND IN QUANTITY, ENRICHING THE SOIL WITH FERTI LIZERS, MANURE AND SUCH OTHER MATERIAL, TO SUIT THE CROP WHICH IS SOUG HT TO BE GROWN. PESTICIDES ARE USED TO CONTROL PESTS FROM DAMAGING THE CROP ETC. HE SUBMITTED THAT WITH THE IMPROVEMENT OF TECHNOLOGY I N AGRICULTURAL OPERATIONS, THE DEGREE OF CONTROL HAS INCREASED IN AGRICULTURAL ACTIVITY AND SIMPLY BECAUSE ADVANCED TECHNOLOGY IS USED FOR AGRICULTURAL PRODUCTION, THE OPERATION DOES NOT CEA SE TO BE AN AGRICULTURAL OPERATION. IT IS SUBMITTED THAT MUSHR OOMS ARE GROWN ON SOIL WITH THE EXPENDITURE OF HUMAN, LABOUR AND S KILL AND THAT TECHNOLOGY IS USED TO AID THE NATURAL GROWTH OF THI S AGRICULTURAL PRODUCE. REFERRING TO THE ARGUMENT OF THE LD. STANDING COUNS EL THAT WHAT IS USED IS SPAWN SEED WHICH MEANS A GROUP OF EGGS OF F ISH, HE SUBMITTED THAT SPAWN BY DEFINITION IS ALSO THE MY CELIUM OF FUNGI, :25: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 ESPECIALLY OF MUSHROOM GROWN TO BE EATEN. HE REFER RED TO MYCELIUM AS DEFINED IN RANDOM HOUSE DICTIONARY AN D SUBMITTED THAT IT IS THE VEGETATIVE PART OR THALLUS OF FUNGI BEING COMPOSED OF ONE OR MORE FILAMENTOUS ELEMENTS OR HYPHAE AND THAT THE USE OF THE WORD SPAWNS DOES NOT DECIDE WHETHER THE PROCE SS IN QUESTION IS AN AGRICULTURAL PROCESS OR NOT. HE CLAIMED THAT THE ACTIVITY INVOLVED IN PRODUCTION OF MUSHROOM IS AGRICULTURAL OPERATION. A COMPARATIVE CHART OF THE PROCESS OF GROWTH OF MUS HROOMS AND PROCESS OF GROWTH OF VEGETABLES AND FRUITS WAS GIVE N TO DEMONSTRATE THAT BASIC AGRICULTURAL OPERATIONS ARE PERFORMED IN THE PRODUCTION OF MUSHROOM THAT THE ASSESSEE POSSESSES AC. 33.50 GUNTAS OF AGR ICULTURAL LAND AT KALLAKAL VILLAGE, TOOPRAN MANDAL, MEDAK DI STRICT AS WELL AS 27.1 ACRES OF AGRICULTURAL LAND AT PEDDAPURAM, EAST GODAVARI DISTRICT OF ANDHRA PRADESH AND THAT AT BOTH THE PLA CES THE LAND IS CLASSIFIED AS AGRICULTURAL LANDS, AS PER REVENUE RE CORDS. HE SUBMITTED THAT LAND IS USED FOR CULTIVATION OF MUSH ROOMS. HE LISTED OUT THE VARIOUS OPERATIONS UNDERTAKEN AND ARGUED TH AT IT IS NOT CORRECT TO STATE THAT LAND IS NOT USED FOR CULTIVAT ION OF MUSHROOMS. THE LD. COUNSEL SUBMITTED THAT WHETHER MUSHROOMS AR E FUNGUS WHICH ARE PRODUCED FROM SPAWN AND NOT PLANTS OR CRO PS, IS NOT :26: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 RELEVANT AS THE TERM AGRICULTURE REFERS TO SYSTEM ATIC PRODUCTION BY PERFORMING BASIC OPERATIONS ON LAND. ONCE SOIL IS CULTURED AND CERTAIN BASIC OPERATIONS ARE PERFORMED FOR THE PROD UCTION OF EITHER PLANT OR FUNGI, IT IS CALLED AGRICULTURE. SUCH B ASIC OPERATIONS PERFORMED ON THE LAND MAY BE DONE FOR PRODUCTION OF EITHER THE PLANT OR FRUIT OR VEGETABLES OR FLOWERS OR ANY OTHE R ITEM AND THE TERM FLORICULTURE ETC., HAVE COME INTO USE. THE WORD FUNGI CULTURE IS USED TO DENOTE THE PROCESS OF AGRICULTU RE UNDERTAKEN TO PRODUCE FUNGI INSTEAD OF PLANT AND THAT MUSHROO M IS CONSIDERED AS AN AGRICULTURAL PRODUCT. REFERENCE I S MADE TO THE REPORT OF DIRECTORATE OF MUSHROOM RESEARCH THAT M USHROOM PRODUCTION IS CONSIDERED AS DIVERSIFICATION OF AGRI CULTURAL ACTIVITIES FOR MEETING THE CHALLENGES OF PROVIDING FOOD THE NU TRITIONAL SECURITY TO PEOPLE. HE RELIED ON CERTAIN ARTICLES PUBLISHED IN CERTAIN JOURNALS FOR THE PROPOSITION THAT MUSHROOMS ARE EDIBLE VEGETABLES. ON THE RELIANCE PLACED BY THE REVENUE ON SECTION 80 JJA, IT WAS SUBMITTED THAT IT SUPPORTS THE CASE OF THE ASSESSEE AS ONLY INCOME DERIVED FROM THE BUSINESS OF GROWING MUSHROOM WAS C ONSIDERED FOR THE PURPOSE OF GRANT OF EXEMPTION AND IF INCOME DERIVED FROM :27: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 GROWTH OF MUSHROOM, IS NOT OF AGRICULTURAL ACTIVITY , THE EXEMPTION WOULD NOT BE AVAILABLE. ON THE STATEMENTS RECORDED FROM THE OFFICERS AND ST AFF DURING THE COURSE OF SURVEY, IT WAS SUBMITTED THAT THE QUESTIO NS WERE MISLEADING. IN RESPONSE TO SUCH MISLEADING QUESTION S, THE EMPLOYEES HAD GIVEN REPLIES AND THAT THESE REPLIES HAVE BEEN QUOTED BY THE REVENUE AUTHORITIES OUT OF CONTEXT AN D THAT AFFIDAVITS WERE FILED BEFORE THE AO, EXPLAINING THE STATEMENTS AND REBUTTING THE CONCLUSIONS OF THE AO. THAT THE RELIANCE PLACED ON THE TRANSFER OF PROPERT Y ACT FOR THE DEFINITION OF IMMOVABLE PROPERTY IS NOT RELEVANT TO THE FACTS OF THIS CASE. ON THE RELIANCE PLACED ON THE DECISION IN THE CASE OF CHANDER MOHAN VS. ITO [52 TAXMANN.COM 203] (CHANDIGARH- TRIB ), HE SUBMITTED THAT THE ASSESSEE APPEARED IN COURT IN PERSON AND R ELIED ON A CIRCULAR OF GOVERNMENT OF HIMACHAL PRADESH, WHICH W AS REFERRING TO CERTAIN TYPE OF MUSHROOMS AND NOT TO EDIBLE WHI TE BUTTON MUSHROOM, GROWN BY THE ASSESSEE AND THAT THE PROCE SS OF GROWING MUSHROOMS WAS NOT EXPLAINED AND THE PRODUCTION IN T HAT CASE WAS DONE WITHIN THE CITY IN RESIDENTIAL HOUSES. :28: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 ON A QUERY FROM THE BENCH, THE ASSESSEE FILED THE P HOTOGRAPHS OF MUSHROOMS AND OF THE GREEN HOUSE CULTIVATION OF FRU ITS AND VEGETABLES. IN BRIEF A SUMMARY OF THE SUBMISSIONS OF THE ASSESS EE ARE AS FOLLOWS: (A) THE ASSESSEES OBJECT IS TO PRODUCE A NUTRITI OUS VEGETABLE REQUIRED FOR THE INCREASED POPULATION. (B) FOR PRODUCTION OF MUSHROOMS AGRICULTURAL LANDS ARE USED; (C) THE LANDS HELD BY THE ASSESSEE ARE AGRICULTURA L LANDS AND ARE TREATED AS SUCH BY THE BANKING AUTHORITIES AND ALSO THE REV ENUE AUTHORITIES. (D) THE BASE FOR PRODUCTION IS LAND/SOIL PREPARED W ITH PADDY STRAW, MANURE AND OTHER INGREDIENTS; (E) THE SOIL SO PREPARED IS CULTIVATED BY PROVIDIN G MANURES, PESTICIDES, WATER AND OTHER NECESSARY INGREDIENTS; (F) THE PROCESS OF PRODUCTION IS THE SAME AS IN A NY OTHER AGRICULTURAL PRODUCE/PLANT. :29: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 (G) SEEDS ARE OBTAINED FROM THE MATURED MUSHROOM; THEY ARE SPAWN OVER THE PROCESSED SOIL; WATERING IS DONE PERIODICA LLY; THE GROWTH IS OBSERVED AND HARVESTING IS DONE. (H) THE WHOLE CYCLE IS LIKE GROWING ANY OTHER VEGET ABLE PLANT; (I) THE GOVT. DEPARTMENTS; FINANCIAL INSTITUTIONS ; WORLD ORGANIZATION; THE FOOD ORGANISATIONS TREATED MUSHROOM AS AGRICULT URE. 10. CROSS OBJECTIONS: ON THE CROSS-OBJECTIONS, LD. COUNSEL FOR THE ASSESS EE SRI K. GOPAL SUBMITTED THAT THE REASONS FOR REOPENING WERE NOT P ROVIDED TO THE ASSESSEE DESPITE SEVERAL REMINDERS. THE LD. STANDI NG COUNSEL POINTED OUT THAT REASONS FOR REOPENING WERE FURNISHED TO TH E ASSESSEE AND THAT THE COPY OF THE SAME WERE PLACED BY THE ASSESSEE IN ITS PAPER BOOK. NO OTHER ARGUMENTS WERE ADVANCED BY THE LD. COUNSEL FO R THE ASSESSEE ON THIS ISSUE OF RE-OPENING. THIS GROUND ON THE ISSUE OF REOPENING OF ASSESSMENT U/S. 147 OF THE ACT ARISES FOR THE AYS. 2008-09 AND 2010-11 ONLY. AS THE ARGUMENT OF THE LD. COUNSEL FOR THE A SSESSEE IS FOUND TO BE FACTUALLY INCORRECT, THESE GROUNDS OF CROSS-OBJECTI ONS ARE DISMISSED. 10.1. THE OTHER GROUNDS TAKEN UP BY THE ASSESSEE I N THE CROSS- OBJECTIONS FOR ALL THE FOUR ASSESSMENT YEARS HAVE N OT BEEN PRESSED FOR THE REASON THAT, RELIEF WAS GRANTED TO THEM BY THE LD.C IT(A) DURING THE COURSE OF 154 PROCEEDINGS. HENCE THESE GROUNDS ARE DISMI SSED. :30: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 REVENUES REJOINDER: 11. IN HER REJOINDER, SMT. MAMATA CHOUDARY REITERA TED HER CONTENTION THAT, FOR AN INCOME TO BE AN AGRICULTURA L INCOME, IT SHOULD BE DERIVED BY PERFORMING BASIC OPERATIONS ON LAND WHIC H IS AN IMMOVABLE PROPERTY. ON A QUERY FROM THE BENCH, SHE SUBMITTED THAT THE REVENUE DOES NOT DISPUTE THAT WHAT IS SPREAD IN THE TRAYS I S SOIL ON WHICH MUSHROOM IS GROWN. FINDINGS: 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F BOTH THE LD. COUNSELS, THE ORDERS OF THE LD.AO, AS WELL AS L D.CIT(A), CASE LAW CITED BY BOTH THE PARTIES AND MATERIAL PLACED BEFORE US, AS WELL AS BEFORE THE REVENUE AUTHORITIES. 12.1. THE PROCESS FOLLOWED BY THE ASSESSEE FOR PRO DUCTION OF EDIBLE WHITE BUTTON MUSHROOM IS AS FOLLOWS:- STAGE-I PREPARATION OF COMPOST INVOLVES TAKING THE INGREDIE NTS SUCH AS PADDY STRAW, CHICKEN MANURE, GYPSUM AND SOME AMMONI A COMPOUND AND ADDING SUFFICIENT WATER AND MIXING. THEN, TRANSFERR ED TO BUNKERS FOR FURTHER DECOMPOSITION UNDER AERATION. STAGE-II AFTER FIVE DAYS THE COMPOST IS TRANSFERRED FROM BU NKERS TO TUNNELS FOR PASTEURIZATION AND CONDITIONING. :31: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 STAGE-III. THE ABOVE PREPARED COMPOST IS TRANSFERRED TO GROWI NG ROOMS WITH SPAWN (SEED) AND PLACED IN THE SHELVES. THIS L AYER WILL BE OF ABOUT 200 MM THICKNESS. THE SPAWN RUN (I.E., SPREADING OF SPA WN) TAKES ABOUT 12 DAYS TO 20 DAYS. THIS IS DONE UNDER CONTROLLED COND ITIONS IN THE GROWING ROOMS. STAGE-IV AFTER THE SPAWN RUN, THE BEDS ARE CASED WITH CASING SOIL OF ABOUT 50 MM THICKNESS. THE CASING SOIL IS PREPARED BY MIX ING COIR PITH, BALLCLAY WITH SUITABLE OTHER MICRO NUTRIENTS AND SPAWN. THEN CASE RUN IS ALLOWED FOR THE SPAWN TO SPREAD. IT MAY TAKE 6-8 DAYS. AFTE R THIS VENTING IS DONE BY GIVING AIR, TEMPERATURE, C02 AND MOISTURE TO SPAWN UPON WHICH IT STARTS FORMING, PINS (PRIMODIA). STAGE- V AFTER THE PINS, THE MUSHROOM GROWS INTO HARVESTING IN 13-21 DAYS. THE HARVESTING IS DONE IN 2-3 FLUSHES (PICKING). STAGE- VI AFTER THE 2-3 FLUSHES, THE GROWING ROOM IS COOKED O UT I.E., HEATED UP TO 65 C DEGREES TO KILL THE REMAINING MYCELIUM, MUSHROOMS PINS AND MUSHROOMS. THE RACKS AND SHELVES ARE UNLOADED AND K EPT CLEANED FOR NEXT LOADING. THE ONE BATCH CYCLE IN GROWING ROOMS TAKES ABOUT 45-53 DAYS. 12.2. ON THESE FACTS AND CIRCUMSTANCES, THE FOLLOW ING ISSUES ARISE FOR OUR CONSIDERATION WHICH WOULD ANSWER THE QUESTI ON REFERRED TO US. I. LAND IS IMMOVABLE PROPERTY. SOIL IS PART OF L AND. IF SOIL IS PLACED IN TRAYS OR POTS AND WHEN OPERATIONS ARE CARRIED OU T ON THIS SOIL, WHICH :32: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 IS DETACHED FROM LAND, FOR PRODUCTION OF MUSHROOM, COULD SUCH ACTIVITY BE TERMED AS AGRICULTURAL ACTIVITY? II. IS MUSHROOMS A FUNGI OR VEGETABLE OR PLANT ? IS THE INCOME DERIVED FROM THE PRODUCTION AND SALE OF MUSHROOM, A GRICULTURAL INCOME IF THE PRODUCT IS A FUNGI? III. WHEN AGRICULTURAL PRODUCTION IS DONE IN CONT ROLLED CONDITIONS, DOES IT CEASE TO BE AGRICULTURAL OPERATION RESULTIN G IN THE INCOME DERIVED THEREFROM NOT BEING AGRICULTURAL INCOME? 12.3. BEFORE WE GO INTO THESE QUESTIONS, WE REPROD UCE SECTION 2(1A) OF THE ACT: (1A) 4 ]' AGRICULTURAL INCOME' MEANS- (A) ANY RENT OR REVENUE DERIVED FROM LAND WHICH IS SIT UATED IN INDIA AND IS USED FOR AGRICULTURAL PURPOSES; (B) ANY INCOME DERIVED FROM SUCH LAND BY- (I) AGRICULTURE; OR (II) THE PERFORMANCE BY A CULTIVATOR OR RECEIVER OF REN T- IN- KIND OF ANY PROCESS ORDINARILY EMPLOYED BY A CULTIVATOR OR RECEIVER OF RENT- IN- KIND TO RENDER THE PRODUCE RAISED OR RECEIVED BY HIM FIT TO BE TAKEN TO MARKET ; OR (III) THE SALE BY A CULTIVATOR OR RECEIVER OF RENT- IN- KIND OF THE PRODUCE RAISED OR RECEIVED BY HIM, IN RESPECT OF WHICH NO PROCESS HAS BEEN PERFORMED OTHER THAN A PROCESS OF THE NATURE DESCRIBED IN PARAGRAPH (II) O F THIS SUB- CLAUSE; (C) ANY INCOME DERIVED FROM ANY BUILDING OWNED AND OCC UPIED BY THE RECEIVER OF THE RENT OR REVENUE OF ANY SUCH LAND, OR OCCUPIED BY TH E CULTIVATOR OR THE RECEIVER OF RENT- IN- KIND, OF ANY LAND WITH RESPECT TO WHICH, OR THE PRODUCE OF WHICH, ANY PROCESS MENTIONED IN PARAGRAPHS (II) AND (III) OF SUB- CLAU SE (B) IS CARRIED ON: 1 PROVIDED THAT- (I) THE BUILDING IS ON OR IN THE IMMEDIATE VICINITY OF THE LAND, AND IS A BUILDING WHICH THE RECEIVER OF THE RENT OR REVENUE OR THE CULTIVAT OR, OR THE RECEIVER OF RENT- IN- KIND, BY REASON OF HIS CONNECTION WITH THE LAND, REQUIRES AS A DWELLING HOUSE, OR AS A STORE- HOUSE, OR OTHER OUT- BUILDING, AND (II) THE LAND IS EITHER ASSESSED TO LAND REVENUE IN IND IA OR IS SUBJECT TO A LOCAL RATE ASSESSED AND COLLECTED BY OFFICERS OF THE GOVERNMEN T AS SUCH OR WHERE THE LAND IS NOT SO ASSESSED TO LAND REVENUE OR SUBJECT TO A LOCAL R ATE, IT IS NOT SITUATED- (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUN ICIPALITY (WHETHER KNOWN AS A :33: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 MUNICIPALITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE OR BY ANY OTHER NAME) OR A CANTONMEN T BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFO RE THE FIRST DAY OF THE PREVIOUS YEAR; OR (B) IN ANY AREA WITHIN SUCH DISTANCE, NOT BEING MORE T HAN EIGHT KILOMETERS, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOAR D REFERRED TO IN ITEM (A), AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANISATION OF THAT AREA AND OTHER RELEVANT CONSIDERATIONS, SPE CIFY IN THIS BEHALF BY NOTIFICATION 2 IN THE OFFICIAL GAZETTE.] 3 EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT REVENUE DERIVED FROM LAND SHALL NOT INCLUDE AN D SHALL BE DEEMED NEVER TO HAVE INCLUDED ANY INCOME ARISING FROM THE TRANSFER OF AN Y LAND REFERRED TO IN ITEM (A) OR ITEM (B) OF SUB- CLAUSE (III) OF CLAUSE (14) OF THI S SECTION;] 12.4. WE NOW REPRODUCE THE RELEVANT PORTIONS OF TH E LANDMARK JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. RAJA BENOY KUMAR SAHAS ROY (1957) [32 ITR 466] ON AGRICULTURAL ISSUE. THE PRIMARY SENSE IN WHICH THE TERM AGRICULTURE IS UNDERSTOOD IS AGARFIELD AND CULTRACULTIVATION, I.E., THE CULTIV ATION OF THE FIELD, AND IF THE TERM IS UNDERSTOOD ONLY IN THAT SENSE AGRICU LTURE WOULD BE RESTRICTED ONLY TO CULTIVATION OF THE LAND IN THE S TRICT SENSE OF THE TERM MEANING THEREBY, TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING AND SIMILAR OPERATIONS ON THE LAND. THEY WOULD BE THE B ASIC OPERATIONS AND WOULD REQUIRE THE EXPENDITURE OF HUMAN SKILL AND LA BOUR UPON THE LAND ITSELF. THERE ARE HOWEVER OTHER OPERATIONS WHICH HAVE GOT TO BE RESORTED TO BY THE AGRICULTURIST AND WHICH ARE ABSOLUTELY NECESSAR Y FOR THE PURPOSE OF EFFECTIVELY RAISING THE PRODUCE FROM THE LAND. THEY ARE OPERATIONS TO BE PERFORMED AFTER THE PRODUCE SPROUTS FROM THE LAND, I.E., WEEDING, DIGGING THE SOIL AROUND THE GROWTH, REMOVAL OF UNDESIRABLE UNDE RGROWTHS AND ALL OPERATIONS WHICH FOSTER THE GROWTH AND PRESERVE THE SAME NOT ONLY FROM INSECTS AND PESTS BUT ALSO FROM DEPREDATION FROM OU TSIDE, TENDING, PRUNING, CUTTING, HARVESTING, AND RENDERING THE PRODUCE FIT FOR THE MARKET. THE LATTER WOULD ALL BE AGRICULTURAL OPERATIONS WHEN TAKEN IN CONJUNCTION WITH THE BASIC OPERATIONS ABOVE DESCRIBED, AND IT WOULD BE FUTILE TO URGE THAT THEY ARE NOT AGRICULTURAL OPERATIONS AT ALL. THE TERM 'AGRICULTURE' IS UNDERSTOOD AS COMPRISING WITHIN ITS SCOPE THE BASIC AS WELL AS SUBSEQUENT OPERATIONS IN THE PROCE SS OF AGRICULTURE AND THE RAISING ON THE LANDS OF PRODUCTS WHICH HAVE SOM E UTILITY EITHER FOR CONSUMPTION FOR TRADE AND COMMERCE, IT WILL BE SEEN THAT THE TERM 'AGRICULTURE' RECEIVES A WIDER INTERPRETATION BOTH IN REGARD TO ITS OPERATIONS AS WELL AS THE RESULTS OF THE SAME. NEVE RTHELESS THERE IS PRESENT ALL THROUGHOUT THE BASIC IDEA THAT THERE MU ST BE AT THE BOTTOM OF :34: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 ITS CULTIVATION OF LAND IN THE SENSE OF TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING, AND SIMILAR WORK DONE ON THE LAND ITSELF. (EMPHASIS OURS) 12.5. THIS JUDGMENT MAKES IT CLEAR THAT THE TERM AGRICULTURE IS CULTRA I.E. CULTIVATION OF THE AGAR I.E. FIELD/ LAND. AGRICULTURAL ACTIVITY REQUIRES EXPENDITURE OF HUMAN SKILL AND LABOUR, UPO N THE LAND ITSELF AND THIS SHOULD RESULT IN EFFECTIVELY RAISING A PRODUC T FROM THE LAND. THE PRODUCT SHOULD HAVE SOME UTILITY EITHER FOR CONSUM PTION, FOR TRADE AND COMMERCE. THE TERM AGRICULTURE RECEIVES A WIDER I NTERPRETATION BOTH WITH REGARD TO ITS OPERATIONS AS WELL AS THE RES ULTS OF SUCH OPERATION. 12.6. THE HORIZON OF INTERPRETING THE TERM AGRICU LTURE WAS GIVEN A MORE ADAPTIVE WIDTH BY THE HIGH COURT OF MADRAS I N CIT V. K.E. SUNDARA MUDALIAR [1950] 18 ITR 259 (MAD.) , WHEREIN THE COURT STATED AS UNDER: IN PANADAI PATHAN V. RAMASAMI CHETTI [1922] ILR 45 MADSPENCER. J., AT PAGE 713 STATED HIS CONCLUSION IN THESE WORDS: IN MY OPINION AGRICULTURE CONNOTES THE RAISING OF USEFUL OR VALUABLE PRODUCTS WHICH DERIVE NUTRIMENT FROM THE SOIL WITH THE AID OF HUMAN SKILL AND LABOUR;RAMESAM. J., AT PAGE 714 WAS AGAI NST PLACING A NARROWER INTERPRETATION UPON THE WORD FOR HE SAYS: TO GIVE A NARROWER INTERPRETATION TO THE TERM AND TO CONFINE IT TO THE RAISING OF PRODUCTS USED A S FOOD FOR MAN AND BEAST WILL EXCLUDE ALL CULTIVATION OF FIBROUS PLANTS SUCH AS COTTON, JUTE AND LINEN AND ALL PLANTS USED FOR DYEING PURPOSES, SUCH AS INDIGO, ETC., ALL TIMBER TREES, A ND FLOWERING PLANTS. I DO NOT THINK THIS IS THE INTENTION OF THE ACT. THE CONCURRENT VIEW IN THIS VERY JUDGMENT OF SH RI VISHWANTHA SASTRI.J., IS THAT THERE BEING NO DEFINITION OF AGRICULTURE AND AGR ICULTURAL PURPOSE IN THE ACT THE WORDS HAVE TO BE CONSTRUED AND UNDERSTOOD IN THEIR POPULAR SENSE AND ACCORDING TO THEIR ORDINARY MEANING. :35: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 IT IS A MATTER OF ORDINARY EXPERIENCE AT LEAST IN T HIS PART OF THE COUNTRY THAT MANGO, COCONUT, PALMYRA, ORANGE, JACK, ARECANUT, TAMARIND AND OTHER TREES ARE PLANTED USUALLY IN AN ENCLOSED LAND AND THAT THESE TREES DO NOT YIELD ANY FRUIT OR CROP IN THE EARLY YEARS OF THEIR GROWTH. THEY REMAIN ON THE LAN D FOR A LONG NUMBER OF YEARS YIELDING FRUIT ONLY AFTER THEIR MATURITY. THERE IS NO REASON WHY THE PLANTING REARING, WATERING, FENCING AND PROTECTION OF SUCH TREES AND THE GATHERING OF THEIR FRUITS DURING THE ANNUAL SEASONS SHOULD NOT BE HELD TO BE AGRICUL TURE. THERE IS SOME KIND OF CULTIVATION OR PRODDING OF THE SOIL AT THE INCEPTIO N WHEN THE PLANTING IS DONE AND SUBSEQUENTLY ALSO AT INTERVALS. IN THE CASE OF COFF EE GROWN ON HISS SLOPES, THERE IS NO PLOUGHING OR TILLAGE AS IN THE CASE OF WET AND DRY FIELDS, BUT IT CANNOT BE MAINTAINED THAT GROWING COFFEE IS NOT AN AGRICULTURAL OPERATIO N. 12.7. THE HONBLE HIGH COURT AS FAR BACK AS IN TH E YEAR 1950, HELD THAT OPERATIONS ON LAND DOES NOT NECESSARILY MEAN P LOUGHING, TILLAGE AND CAN BE OF SOME OTHER KIND ALSO. THE OPERATION WOUL D DEPEND ON THE REQUIREMENTS OF THE CIRCUMSTANCES OF THE CASE. A WI DE MEANING HAS BEEN GIVEN TO THE TERM AGRICULTURAL OPERATION. 12.8. THOUGH THE LD. ASSESSING OFFICER HAS HELD THAT THE COMPOST USED FOR PRODUCTION OF MUSHROOM BY THE ASSESSEE IS NOT SOIL, THE LD. ST. COUNSEL, IN REPLY TO A SPECIFIC QUERY FROM THE BENC H, STATED THAT THIS COMPOST ON WHICH MUSHROOM IS GROWN IS SOIL. 12.9. HENCE, THE UNDISPUTED FACTS ARE THAT, MUSHRO OMS ARE GROWN ON SOIL. CERTAIN BASIC OPERATIONS ARE PERFORMED O N SUCH SOIL WHICH REQUIRE EXPENDITURE OF HUMAN SKILL AND LABOUR ON THE SOIL RESULTING IN RAISING A PRODUCT CALLED EDIBLE WHITE BUTTON MUS HROOM. THE PRODUCT EDIBLE WHITE BUTTON MUSHROOM HAS UTILITY FOR CONS UMPTION, TRADE AND COMMERCE. 12.10. THE LD. STANDING COUNSEL REFERRED TO THE DE CISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF UNION OF I NDIA VS. KRISHNA :36: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 MURTHY (SUPRA) WHEREIN AT PARA 14, MULLAHS COMMENT ARY ON TRANSFER OF PROPERTY ACT HAS BEEN EXTRACTED ALONG WITH DEFINITI ON OF IMMOVABLE PROPERTY UNDER GENERAL CLAUSES ACT, AND ARGUED TH AT LAND IS IMMOVABLE PROPERTY AND ONCE SOIL IS DETACHED FROM LAND, IT CE ASES TO BE LAND. DEFINITIONS AS RELIED UPON BY THE PARTIES ARE EXTRA CTED FOR READY REFERENCE: LAND IN THE BLACKS LAW DICTIONARY, FREE ONLINE LEGAL DI CTIONARY, 2 ND EDITION, LAND IS DEFINED AS: IN THE MOST GENERAL SENSE, COMPREHENDS ANY GROUND, SOIL OR EARTH WHATSOEVER; AS MEADOWS, PASTURES, WOODS, MOORS, WAT ERS, MARSHES, FURZES AND HEATH.CO.LITT 4A. THE WORD LAND INCLUDED NOT ONLY THE SOIL BUT EVERYTHING ATTACHED TO IT, WHETHER ATTACHED BY THE COURSE OF NATURE, AS TREES, HERBAGE, AND WATER, OR BY THE HAND OF MAN, AS BUILD INGS AND FENCES. LAND IS THE SOLID MATERIAL OF THE EARTH, WHATEVER MAY BE THE INGREDIENTS WHICH IT IS COMPOSED OF WHETHER SOIL, ROCK OR OTHER SUBSTANCE . SOIL THE WORD SOIL AS PER RANDOM HOUSE DICTIONARY TH E UNABRIDGED EDITION TO INCLUDE ANY PLACE OR CONDITION PROVIDING THE OP PORTUNITY FOR GROWTH OR DEVELOPMENT. 12.11. SOIL IS THE THIN SKIN THAT COVERS THE LAN D. SOIL IS MATERIAL IN THE TOP LAYER OF THE SURFACE OF THE EARTH ON WHI CH PLANTS CAN GROW AND :37: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 IS A NON-RENEWABLE RESOURCE. IT TAKES AGES FOR ROCK S TO WITHER INTO SOIL AND RICH ORGANIC MATTER TO BUILD UP. LAND IS A PART OF THE EARTH, WHILE SOIL REFERS TO ONE PART OF THE LAND. LAND, AS COMMONLY UNDERSTO OD MEANS, THE SURFACE OF THE EARTH NOT COVERED BY A BODY OF WATER. THUS, THE TERM LAND INCLUDES SOIL. IN THE DEFINITION REFERRED ABOVE, LAND IS D EFINED IN AN INCLUSIVE MANNER. 12.12. THE LD. STANDING COUNSEL RELIED ON THE PRIN CIPLES OF NOSCITUR A SOCIIS FOR INTERPRETATION THE WORD LA ND. SHE ALSO ARGUED THAT CONTEXTUALLY THE INDIAN INCOME TAX TREATS LAND AS REAL IMMOVABLE PROPERTY. THE TERMS NOSCITUR A SOCIIS IS RELATED TO LEGAL D OCTRINE AND STATUTORY INTERPRETATION OF LAWS. IN LATIN THE TERM NOSCITUR A SOCIIS MEANS THE ME ANING OF A WORD MAY BE KNOWN FROM ACCOMPANYING WORDS. IT IS ALSO USED FOR INTERPRETING QUESTIONABLE WORDS IN STATUTES. WHEN A WORD IS AMBI GUOUS, ITS MEANING MAY BE DETERMINED BY REFERENCE TO THE REST OF THE S TATUTE. IT IS ONE OF THE RULES OF THE LANGUAGE USED BY THE COURTS THAT HELPS TO INTERPRET LEGISLATION. FOR THE CASE WITH NOSCITUR A SOCIIS THE QUESTIONA BLE MEANING OF A WORD OR DOUBTFUL WORDS CAN BE DERIVED FROM ITS ASSOCIATI ON WITH OTHER WORDS WITHIN THE CONTEXT OF THE PHRASE. THIS INDICATES TH AT WORDS IN A LIST WHICH IS WITHIN A STATUTE HAVE MEANINGS THAT ARE RELATED TO EACH OTHER. :38: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 THE PRINCIPLE OF NOSCITUR A SOCIIS IS A RULE OF CON STRUCTION. IT IS USED BY THE COURT TO INTERPRET LEGISLATION. THIS MEANS THAT THE MEANING OF AN UNCLEAR WORD OR PHRASE MUST BE DETERMINED BY THE WORDS THAT SURROUND IT. IN OTHER TERMS, THE MEANING OF A WORD MUST BE JUDGED B Y THE COMPANY THAT IT KEEPS. THE QUESTIONABLE MEANING OF A DOUBTFUL WO RD WILL BE DERIVED FROM ITS ASSOCIATION WITH OTHER WORDS. IT IS USED W HEREVER A STATUTORY PROVISION CONSTITUTES A WORD OR PHRASE THAT IS CAPA BLE OF BEARING MORE THAN ONE MEANING. THIS RULE IS EXPLAINED IN THE MAXWELL ON THE INTERP RETATION OF STATUTES IN THE 12TH EDITION IN FOLLOWING WORDS WHEN TWO OR M ORE WORDS SUSCEPTIBLE OF ANALOGOUS MEANING ARE COUPLED TOGETH ER, THEY ARE UNDERSTOOD TO BE USED IN THEIR COGNATE SENSE. THE W ORDS TAKE THEIR COLOR FROM AND ARE QUANTIFIED BY EACH OTHER, THE MEANING OF THE GENERAL WORDS BEING RESTRICTED TO A SENSE ANALOGOUS TO THAT OF TH E LESS GENERAL. THIS PRINCIPLE NEEDS A WORD OR PHRASE OR EVEN A WHO LE PROVISION THAT STANDS ALONE HAS A CLEAR MEANING, WILL BE GIVEN QUI TE A DIFFERENT MEANING WHILE VIEWED IN THE LIGHT OF ITS CONTEXT. 12.13. NO DOUBT THE TERM LAND, AS ARGUED BY THE LD. SR. STANDING COUNSEL, IS GENERALLY UNDERSTOOD AS IMMOVABLE PROPE RTY, UNDER THE INCOME TAX ACT AND UNDER THE T.P. ACT. BUT IN THE CASE ON HAND, THE CONTEXT AND PURPOSE FOR WHICH THE TERM LAND HAS B EEN USED BY THE LEGISLATURE HAS TO BE UNDERSTOOD. USE OF LAND AND PERFORMING ACTIVITY ON LAND ITSELF, IS THE REQUIREMENT SPECIFIED FOR A NAT URAL PRODUCT THAT RAISES FROM LAND ITSELF, TO BE AN AGRICULTURAL PRODUCT, TH E INCOME FROM WHICH IS :39: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 EXEMPT FROM TAX. IF THE QUESTION TO BE ANSWERED IS WHETHER LAND IS USED FOR PRODUCTION OR NOT, THEN IN OUR VIEW STRICT INTE RPRETATION CANNOT BE APPLIED. 12.14. THE TERM LAND IN OUR VIEW HAS TO BE INTER PRETED BY USING THE PRINCIPLES OF PURPOSIVE INTERPRETATION. THE PURPOSIVE APPROACH (SOMETIMES REFERRED TO AS PU RPOSIVISM, PURPOSIVE CONSTRUCTION, PURPOSIVE INTERPRETATION, OR THE MODERN PRINCIPLE IN CONSTRUCTION) IS AN APPROACH TO STATUT ORY AND CONSTITUTIONAL INTERPRETATION UNDER WHICH COMMON LAW COURTS INTERP RET AN ENACTMENT (A STATUTE, PART OF A STATUTE, OR A CLAUSE OF A CON STITUTION) WITHIN THE CONTEXT OF THE LAW'S PURPOSE. PURPOSIVE INTERPRETATION IS A DERIVATION OF MISCHIE F RULE SET IN HEYDON'S CASE, AND INTENDED TO REPLACE THE MISCHIEF RULE, TH E PLAIN MEANING RULE AND THE GOLDEN RULE. PURPOSIVE INTERPRETATION IS USED WHEN THE COURTS USE EXTRANEOUS MATERIALS FROM THE PRE-ENACTMENT PHA SE OF LEGISLATION, INCLUDING EARLY DRAFTS, HANSARDS COMMITTEE REPORTS , AND WHITE PAPERS. THE PURPOSIVE INTERPRETATION INVOLVES A REJECTION O F THE EXCLUSIONARY RULE. SUPREME COURT IN TIRATH SINGH V. BACHITTAR SINGH AP PROVED AND ADOPTED THE SAID APPROACH. IN SHAMRAO V. PARULEKAR V. DISTR ICT MAGISTRATE, THANA, BOMBAY THE COURT REITERATED THE PRINCIPLE FROM MAXW ELL: IF ONE CONSTRUCTION WILL LEAD TO AN ABSURDITY WHIL E ANOTHER WILL GIVE EFFECT TO WHAT COMMONSENSE WOULD SHOW WAS OBVIOUSLY INTEND ED, THE CONSTRUCTION WHICH WOULD DEFEAT THE ENDS OF THE ACT MUST BE REJECTED :40: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 EVEN IF THE SAME WORDS USED IN THE SAME SECTION, AN D EVEN THE SAME SENTENCE, HAVE TO BE CONSTRUED DIFFERENTLY. INDEED, THE LAW GOES SO FAR AS TO REQUIRE THE COURTS SOMETIMES EVEN TO MODIFY THE GRAMMATICAL AND ORDINARY SENSE OF THE WORDS IF BY DOING SO ABSURDIT Y AND INCONSISTENCY CAN BE AVOIDED. IN MOLAR MAL V. KAY IRON WORKS (P) LTD, THE HON'BLE SUPREME COURT WHILE REITERATING THAT COURTS WILL HAVE TO FOLLOW THE RUL E OF LITERAL CONSTRUCTION, WHICH ENJOINS THE COURT TO TAKE THE WORDS AS USED B Y THE LEGISLATURE AND TO GIVE IT THE MEANING WHICH NATURALLY IMPLIES, HEL D THAT THERE IS AN EXCEPTION TO THAT RULE. THE COURT OBSERVED: THAT EXCEPTION COMES INTO PLAY WHEN APPLICATION OF LITERAL CONSTRUCTION OF THE WORDS IN THE STATUTE LEADS TO A BSURDITY, INCONSISTENCY OR WHEN IT IS SHOWN THAT THE LEGAL CO NTEXT IN WHICH THE WORDS ARE USED OR BY READING THE STATUTE AS A W HOLE, IT REQUIRES A DIFFERENT MEANING. IN MANGIN V. INLAND REVENUE COMMISSION THE PRIVY CO UNCIL HELD: THE OBJECT OF THE CONSTRUCTION OF A STATUTE, BE IT TO ASCERTAIN THE WILL OF THE LEGISLATURE, IT MAY BE PRESUMED THAT NE ITHER INJUSTICE NOR ABSURDITY WAS INTENDED. IF, THEREFORE A LITERAL INTERPRETATION WOULD PRODUCE SUCH A RESULT, AND THE LANGUAGE ADMIT S OF AN INTERPRETATION WHICH WOULD AVOID IT, THEN SUCH AN INTERPRETATION MAY BE ADOPTED . 12.15. SOIL IS A PART OF THE LAND. LAND IS ALSO PART OF EARTH. THE UPPER STRATA OF THE LAND IS SOIL AND THIS IS CULTUR ED AND MADE FIT FOR PRODUCTION OF CROPS, VEGETABLES AND FRUITS ETC., BY ENRICHING THE SOIL. WHEN SUCH SOIL IS PLACED ON TRAYS, IT DOES NOT CEAS E TO BE LAND AND WHEN :41: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 OPERATIONS ARE CARRIED OUT ON THIS SOIL, IT WOULD BE AGRICULTURAL ACTIVITY CARRIED UPON LAND ITSELF. 12.16. IF THE STRICT INTERPRETATION, AS ARGUED BY THE LD. STANDING COUNSEL IS ACCEPTED THEN, WHEN SOIL ATTACHED TO E ARTH IS CULTIVATED, IT IS AGRICULTURAL ACTIVITY AND WHEN SOIL IS CULTIVATED AFTER DETACHING THE SAME FROM EARTH, IT IS NOT AGRICULTURAL ACTIVITY. SUCH AN INTERPRETATION IN OUR VIEW, WOULD BE UNINTENDED AND UNFAIR. THE ONLY PAR T OF THE LAND THAT IS CULTIVABLE, AND WHICH IS USEFUL FOR AGRICULTURAL AC TIVITY IS SOIL WHICH IS THE TOP LAYER OF LAND. THEN WHETHER SUCH SOIL IS ATTAC HED TO LAND OR IS PLACED IN CONTAINERS ABOVE THE LAND SHOULD IN OUR HUMBLE V IEW, NOT MAKE A DIFFERENCE. THOUGH THESE STRONG ARGUMENTS OF THE L D. STANDING COUNSEL APPEALED TO US AB-INITIO ON AN ANALYSIS OF THE PURP OSE FOR WHICH THE TERM IS TO BE INTERPRETED, WE ARE UNABLE TO PERSUADE OUR SELVES TO ACCEPT THE SAME. IF THE TERM AGRI IS FIELD, THEN FIELD CAN BE ON LAND OR ON A TERRACE OR ON A POT, TRAY ETC., IN VIEW OF THE ABOVE DISCUSSIONS, WE HOLD THAT IT IS IMPORTANT TO DISTINGUISH BETWEEN THE MEANING OF THE TERM SOIL FROM LAND, BECAUSE THE CULTURED TOP STRATA OF THE EART HS SURFACE, WHICH IS FIT FOR ARABLE CULTIVATION, IS ACTUALLY WHAT IS REQUIRE D FOR AGRICULTURAL PURPOSES AND THIS TOP LAYER (BEING SOIL) IS ONE O N WHICH ACTUAL AGRICULTURAL GROWTH TAKES PLACE. IN CONTRAST, THE M EANING ATTRIBUTED TO LAND (PRIMARILY AS AN IMMOVABLE OBJECT) IS OF A WID E IMPORT. FOR THE PURPOSE OF UNDERSTANDING THE NEXUS BETWEEN AN AGRIC ULTURAL OPERATION AND AN AGRICULTURAL LAND, WHAT NEEDS TO BE INFERRED FROM THE TERM LAND IS THAT, THE CULTURED TOP LAYER OF THE EARTH, WHICH IS FIT FOR ANY SORT OF CULTIVATION, IS LAND FOR THIS PURPOSE. HENCE, IN OU R OPINION, THE SOIL WHICH :42: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 IS PLACED ON THE VERTICAL SPACE ABOVE THE LAND IN T RAYS, IN ONE SENSE OF THE TERM, IS ALSO LAND. 13. WE NOW CONSIDER THE ARGUMENTS ON THE EXPLANATI ON 3 TO SECTION 2(1A) OF THE ACT. THE ASSESSEE RELIES ON E XPLANATION-3 TO SECTION 2(1A) WHICH READS AS FOLLOWS: 3. FOR THE PURPOSES OF THIS CLAUSE, ANY INCOME DER IVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY SHALL BE DEEMED TO BE AGRICULTURAL INCOME. THUS, WHAT IS NOT OTHERWISE AGRICULTURAL INCOME, I S DEEMED UNDER THE EXPLANATION AS AGRICULTURAL INCOME. SHRI P. CHIDAMBARAM, THE THEN HON'BLE FINANCE MINIS TER, WHILE PRESENTING UNION BUDGET FOR 2008-09 AT PARA 167 STA TED AS FOLLOWS: AGRICULTURE INCOME IS EXEMPT FROM INCOME TAX. HOW EVER, COURTS HAVE RULED THE GROWING SAPLINGS OR SEEDLINGS OF LAN D IS AGRICULTURE. BUT GROWING THEM IN POTS IS NOT AGRICULTURE. THIS DOES NOT SEEM TO BE FAIR. HENCE, I PROPOSE TO EXEMPT FROM TAX INCOME ARISING FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY. (EMPHASIS ON) WHILE INTRODUCING EXPLANATION 3 TO SECTION 2(1A) OF THE ACT, IN THE EXPLANATORY NOTE AT PARA 4.2. IT IS STATED AS FOLL OWS:- WITH A VIEW TO GIVING FINALITY TO THE ISSUE, AND E XPLANATION IN SECTION 2 OF THE INCOME-TAX ACT, HAS BEEN INSERTED PROVIDING THAT AN Y INCOME DERIVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY SHALL BE D EEMED TO BE AGRICULTURAL INCOME. ACCORDINGLY, IRRESPECTIVE OF WHETHER THE BA SIC OPERATIONS HAVE BEEN CARRIED OUT ON LAND, SUCH INCOME WILL BE TREATED AS AGRICULTURAL INCOME, THUS QUALIFYING FOR EXEMPTION UNDER SUB-SECTION(1) OF SE CTION 10 OF THE ACT. (EMPHASIS OURS) :43: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 13.1. IT IS TRUE THAT THIS EXPLANATION 3 TO SECTIO N 2(1A) OF THE ACT, IS A DEEMING PROVISIONS IN THE ACT. IT IS ALSO TRU E THAT DEEMING FICTION CANNOT BE EXTENDED AND SHOULD BE STRICTLY RESTRICTE D TO THE FICTION CREATED. THE IMPRESSION THAT THIS AMENDMENT WAS BROUGHT INTO THE STATUTE TO NULLIFY CERTAIN JUDICIAL PRONOUNCEMENTS IS FACTUALL Y INCORRECT. THE COURTS HAVE DECIDED THAT INCOME FROM NURSERY IS AGRICULTUR AL INCOME. 13.2. THE HONBLE HIGH COURT OF MADRAS IN COMMISSI ONER OF INCOME-TAX V. SOUNDARYA NURSERY [2000] 241 ITR 530 (MADRAS), IN WHICH THE COURT OBSERVED AS UNDER: 8. ALL THE PRODUCTS OF THE LAND, WHICH HAVE SOME U TILITY EITHER FOR CONSUMPTION OR FOR TRADE OR COMMERCE, IF THEY ARE BASED ON LAND, W OULD BE AGRICULTURAL PRODUCTS. HERE, IT IS NOT THE CASE OF THE REVENUE THAT WITHOU T PERFORMING THE BASIC OPERATIONS, ONLY THE SUBSEQUENT OPERATIONS, AS DESC RIBED IN THE DECISION OF THE APEX COURT HAVE BEEN PERFORMED BY THE ASSESSEE. IF THE PLANTS SOLD BY THE ASSESSEE IN POTS WERE THE RESULT OF THE BASIC OPERATIONS ON THE LAND ON EXPENDING HUMAN SKILL AND LABOUR THEREON AND IT WAS ONLY AFTER THE PERFORMANCE OF THE BASIC OPERATIONS ON THE LAND, THE RESULTANT PRODUCT GROWN OR SUCH PART THEREOF AS WAS SUITABLE FOR BEING NURTURED IN A POT, WAS SEPARATED AND PLACED IN A POT AND NURTURED WITH WATER AND BY PLACING THEM IN THE GREE NHOUSE OR IN SHADE AND AFTER PERFORMING SEVERAL OPERATIONS, SUCH AS WEEDING, WAT ERING, MANURING, ETC., THEY WERE MADE READY FOR SALE AS PLANTS ALL THESE OPERAT IONS WOULD BE AGRICULTURAL OPERATIONS AND ALL THIS INVOLVES HUMAN SKILL AND EF FORT. THUS, THE PLANTS SOLD BY THE ASSESSEE IN POTS WERE THE RESULT OF PRIMARY AS WELL AS SUBSEQUENT OPERATIONS COMPREHENDED WITHIN THE TERM AGRICULTURE AND THEY ARE CLEARLY THE PRODUCTS OF AGRICULTURE. 13.3. THUS, THE HONBLE HIGH COURT GAVE BREADTH TO A MORE EXPANSIVE DEFINITION OF THE TERM AGRICULTURAL PROD UCTS BY INCLUDING WITHIN ITS MEANING ALL PRODUCTS OF LAND, HAVING SOM E UTILITY EITHER FOR CONSUMPTION OR FOR TRADE OR COMMERCE AND ALSO, INFE RRED THAT PLANTS SOLD BY THE ASSESSEE IN POTS TO BE COMPREHENDED WITHIN T HE TERM AGRICULTURE. THIS JUDGMENT WAS DELIVERED IN THE YEAR 1998, AUGUS T 5 TH , MUCH BEFORE :44: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 THE INTRODUCTION OF EXPLANATION 3 TO SECTION 2(1A) OF THE ACT IN THE YEAR 2008. SIMILAR IS THE JUDGEMENT IN THE CASE OF CIT, CHENNAI VS. K.N. PANNERSELVAM (2016) 75 TAXMANN.COM 98 (MADRAS) . THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN H.H. MAHARAJA VIBHU TI NARAYAN SINGH VS. STATE OF U.P. (1967) 65 ITR 364, WAS CONSIDERED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF SOUNDARYA NURSERY (SUPRA) AT PARA 6 OF THE JUDGMENT. THE COURT HELD THAT THE OBSERVATION OF TH E HONBLE ALLAHABAD HIGH COURT WAS CLEARLY AN OBITER. THIS JUDGMENT IN THE CASE OF SOUNDARYA NURSERY (SUP RA) REQUIRED BASIC OBJECTIONS TO BE PERFORMED ON LAND FOR THE INCOME T O BE EXEMPT AS AGRICULTURAL INCOME. BEFORE THE INTRODUCTION OF EX PLANATION 3 TO SECTION 2(1A) OF THE ACT, GROWING PLANTS IN POTS WAS INTERP RETED AS AGRICULTURAL ACTIVITY BY THE COURTS. WHAT THIS EXPLANATION DOES IS TO EXPAND THIS INTERPRETATION FURTHER. IT LAYS DOWN THAT THE BASI C OPERATIONS ARE NOT NECESSARY IN NURSERIES, AS REQUIRED BY THE JUDGMENT IN THE CASE OF SOUNDARYA NURSERY (SEE EXPLANATION NOTE). HENCE, E VEN WITHOUT THIS EXPLANATION, THE INCOME FROM PLANTS GROWN IN POTS W AS HELD AS AGRICULTURAL INCOME BY THE COURTS. AS THIS EXPLANA TION IS A DEEMING PROVISIONS, WE CANNOT APPLY THE SAME TO THE ASSESSE E. BUT AS THE ASSESSEE PERFORMS BASIC OPERATIONS ON SOIL, THE RATIO OF THE JUDGMENT IN THE CASE OF SOUNDARYA NURSERY (SUPRA) APPLIES TO THE FACTS OF T HIS CASE. 13.4. THE AHMEDABAD BENCH OF THE ITAT IN THE CASE OF DCIT VS. BEST ROSES BIOTECH LTD. (2012)17 TAXMANN.COM 56 (AH D.) HAS HELD AS FOLLOWS:- :45: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 6.1 ACTIVITY IN QUESTION : THE COMPANY HAD DEVELOPE D A GREENHOUSE FOR THE ESTABLISHMENT OF A FLORICULTURE PROJECT. THE COMPAN Y HAD GROWN GOOD QUALITY OF ROSE FLOWERS AND ALSO EXPORTED THEM ABROAD. IT W AS EXPLAINED THAT FOR THE PLANTATION OF ROSES A VERY WELL TREATED SOIL IS REQ UIRED. THE QUALITY OF THE SOIL IS THEREFORE TESTED. MANURES ARE MIXED FOR PREPARING A BASE FOR GROWING THE ROSE PLANTS. THE COMPANY HAS INSTALLED A PROPER DRAINAGE SYSTEM. CERTAIN OPERATIONS SUCH AS MIXING OF SOIL AND WATERING OF P LANTS THROUGH DRAINAGE ARE EXPLAINED. THEN THE ACTIVITY OF PRUNING AND BENDING OF GROWING PLANTS CARRIED OUT TO GET BEST SIZE OF ROSE BUDS. IT HAS ALSO BEEN EXPLAINED THAT PEST CONTROL IS ALSO REQUIRED. INSECTICIDES ARE SPRINKLED TO SAVE T HE PLANTS FROM ANY DISEASE. FROM THE FACTS AS EMERGED FROM THE COMPILATION FILE D WE HAVE GATHERED THAT WITHIN GREENHOUSE THE FLORICULTURE ACTIVITY COMPRIS ES OF GROWING OF ROSE BY DEPLOYING HYDROPONICS TECHNIQUE FOR THE FARMING OF BEST QUALITY ROSES. IT IS STATED THAT THE ASSESSEE HAS DEPLOYED A BUDDING TEC HNICAL PLANT. FURTHER IT WAS EXPLAINED THAT ROOT STOCKS WERE BROUGHT FROM THE MA RKET AND PLACED IN THE GREEN HOUSE. THE PLANTATION AND THE GENERATION OF S APLING WAS NOTHING BUT AGRICULTURAL ACTIVITY. THE MOTHER PLANT IS OTHERWIS E REARED ON EARTH. FOR REARING OF MOTHER PLANT HUMAN LABOUR IS INVOLVED. T HE TILLING OF SOIL, WATERING AND OTHER PRIMARY AGRICULTURAL ACTIVITY IS THE BASI C REQUIREMENT FOR THE GROWING OF THE ROSE PLANTS. SUBSEQUENTLY THE SAPLIN GS ARE PLANTED ON PLASTIC TRAYS, WHICH WERE KEPT AT THE HEIGHT 2-3 FT. PLACED ON MS STAND. IT WAS EXPLAINED THAT THE PURPOSE OF GROWING THE ROSE PLANTS AT A HE IGHT IS PRIMARILY TO AVOID THE PEST AND TO DEVELOP IN A CONTROLLED ATMOSPHERE. BY THIS METHOD, THE ROSE PLANT IS PROTECTED FROM CLIMATE, PEST, AS WELL AS O THER DISEASE, TO MINIMIZE THE POSSIBILITY OF DAMAGE. THE DRAINAGE SYSTEM FOR WATE RING THE PLANTS WITH THE HELP OF DIPPER IS REQUIRED. THE WATERING OF ROSE PL ANTS ARE ALSO A TECHNICAL METHOD TO AVOID EXCESSIVE WATERING SO THAT THE ROOT S OF THE ROSE PLANTS SHOULD NOT GET DAMAGED. THE COMMERCIAL GREENHOUSE I.E. 'BE NT CANOPY' IS USED FOR VARIOUS BENEFITS SO THAT THE SUN-LIGHT AND THE HUMI DITY LEVEL BOTH CAN BE MAINTAINED. FOR MEETING THE INTERNATIONAL DEMAND, I T IS EXPLAINED, THAT THE ASSESSEE-COMPANY ADOPTED BEST MEASURE TO ENSURE BES T QUALITY OF ROSE. 6.2 CONDITIONS OF AGRICULTURE OPERATION - FROM THE SIDE OF THE RESPONDENT- ASSESSEE THERE WAS DETAILED DISCUSSION ABOUT THE GR OWING OF ROSE PLANTS AND OTHER CONNECTED AGRICULTURAL OPERATION CARRIED OUT BY THE ASSESSEE. HOWEVER, THE OBJECTION OF THE REVENUE WAS THAT THE ROSE PLAN TS WERE NOT GROWN ON THE LAND, THEREFORE THE GENERATION OF INCOME WAS NOT DI RECTLY CONNECTED WITH THE OPERATION OF LAND. SOMEHOW WE ARE NOT AGREEING WITH THE SAID PROPOSITION OF THE REVENUE-DEPARTMENT BECAUSE ON DUE CONSIDERATION OF THE ACTIVITY AS EXPLAINED TO US, IT IS NOT JUSTIFIABLE TO SAY THAT THE GROWING OF ROSE PLANTS AT ALL IS NOT CONNECTED WITH THE UTILIZATION OF LAND. IT I S NOT IN DISPUTE THAT THE AGRICULTURAL LAND WAS ACQUIRED BY THE ASSESSEE FROM AGRICULTURISTS. IT IS ALSO NOT IN DISPUTED THAT MOTHER PLATS ARE ALWAYS BEEN G ROWN ON THE AGRICULTURAL LAND. :46: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 AS FAR AS INGREDIENTS OF BASIC OPERATION IS CONCERN ED THE ASSESSEE'S CASE IS THAT THE TECHNOLOGY DEPLOYED IS (I) USE OF SOIL AND OPER ATION ON SOIL (II) USE OF PARTICULAR SOIL TYPE CONTENTS I.E. COCO PEAT, MANUR E, ETC. PRESENT IN THE SOIL, (III) DRAINAGE SYSTEM AS OVER WATERING HARMS THE ROOTS AS WELL AS QUALITY (IV) BENDING SHOOTS FOR MAXIMIZING THE QUALITY OF ROSES, AND (V) PEST AND DISEASES CONTROL FOR PROVIDING PROTECTION TO ROSES. THEREFOR E WE HOLD THAT THE ACTIVITY WHICH IS CONNECTED WITH THE LAND CULTIVATION , SUCH AS PLOUGHING OF FIELD, LEVELING OF FIELD, SOWING OF SEED IN THE PLOUGHED A ND LEVELED FIELD, GROWING OF PLANTS, AS CASE THE MAY BE, PLANTATION, MANURING, W ATERING, WEEDING-OUT OF WEEDS, SO AND SO FORTH. THESE AGRICULTURE OPERATION S ARE SAID TO BE 'BASIC CULTIVATION ACTIVITY' AND THEREAFTER AN AGRICULTURI ST HAS TO PERFORM 'SUBSEQUENT AGRICULTURE OPERATION', NAMELY TENDING OF GROWN PLA NTS, PRUNING, CUTTING OR SHAPING AND FINALLY HARVESTING OF CROP. WE HAVE TO CLARIFY, AS HELD BY FEW HONOURABLE COURTS AS WELL, THAT THE SUBSEQUENT OPER ATIONS OUGHT TO BE A CONTINUATION OF BASIC AGRICULTURE OPERATION. THE FU NDAMENTAL REQUIREMENT IS THAT IT SHOULD REMAIN CONNECTED WITH THE BASIC AGRI CULTURE OPERATION. 13.5. WE AGREE WITH THIS VIEW OF THE TRIBUNAL. TH E PROCESS FOLLOWED IN THE CASE OF BEST ROSES BIOTECH (P.) LTD ., (SUPRA) IN SIMILAR TO THE PROCESS FOLLOWED BY THE ASSESSEE. 13.6. HENCE, THE VIEW OF THE COURTS WAS THAT THE I NCOME IN QUESTION WAS AGRICULTURAL INCOME AND THE EXPLANATIO N ONLY ACKNOWLEDGES THIS FACT. WE SHOULD NOT TAKE A PEDANTIC VIEW ON THIS ISSUE. THE VIEW OF THE LEGISLATURE IS MORE EXPANSIVE AND PURPOSIVE THA N THE VIEW OF THE COURTS. 13.7. IN VIEW OF THE ABOVE DISCUSSION, WE CONCLUDE THAT SOIL, EVEN WHEN SEPARATED FROM LAND AND PLACED IN TRAYS, POTS, CONTAINERS, TERRACES, COMPOUND WALLS ETC., CONTINUES TO BE A SPECIE OF LA ND AND HENCE LAND FOR THE SOLE PURPOSE OF DETERMINING WHETHER ACTIVITY PE RFORMED ON SUCH LAND IS FOR PRODUCTION OF AN AGRICULTURAL PRODUCT. :47: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 14. THE SECOND ISSUE IS WHETHER MUSHROOM IS A FUN GI AND NOT VEGETABLE. THE REVENUE RELIED ON THE WORD SPAWN WHILE THE ASSESSEE RELIED ON THE WORD MYCELIUM. THE DEFINITIONS ARE EXTRACTED FOR READY REFERENCE: SPAWN: THE WORD 'SPAWN' IS DEFINED BY COLLINS DICTIONARY A S THE SPAWN IS A SOFT, JELLY-LIKE SUBSTANCE CONTAINING THE EGGS OF F ISH, OR OF ANIMALS SUCH AS FROGS, WHEN FISH OR ANIMALS SUCH AS FROGS SPAWN, TH EY LAY THEIR EGGS. 1. TO PRODUCE OR DEPOSIT (EGGS, SPERM, OR YOUNG) 2. TO BRING FORTH OR BE THE SOURCE OF (ESP. SOMETHI NG REGARDED WITH CONTEMPT AND PRODUCED IN GREAT NUMBERS) 3. HORTICULTURE TO PLANT WITH SPAWN, OR MYCELIUM NO UN 4. THE MASS OF EGGS OR YOUNG PRODUCED BY FISH, MOLL USKS, CRUSTACEANS, AMPHIBIANS, ETC. 5. SOMETHING PRODUCED, ESP. IN SPECIF., NUMEROUS OF FSPRING OR PROGENY GREAT QUANTITY; USUALLY CONTEMPTUOUS 6. THE MYCELIUM OF FUNGI, ESP. OF MUSHROOMS GROWN T O BE EATEN THE WORD 'SPAWN' IS DEFINED BY RANDOM HOUSE DICTION ARY - THE MASS OF EGGS DEPOSITED BY FISHES, AMPHIBIANS, MOLLUSKS, CRUSTACEAN S ETC 2. BOT, THE MYCELIUM OF MUSHROOMS, ESP OF THE SPECI ES GROWN FOR THE MARKET 3. TO PLANT WITH MYCELIUM :48: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 MYCELIUM: THE WORD MYCELIUM IS DEFINED BY RANDOM HOUSE DIC TIONARY AS THE VEGETATIVE PART OR THALLUS OF THE FUNGI, BEING COMPOSED OF ONE OR MORE FILAMENTOUS ELEMENTS, OR HYPHAE. 14.1. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT MYCELIUM IS A VEGETATIVE PART OF THE FUNGI. LD. STANDING COUNSEL SUBMITS THAT VEGETATIVE PART DOES NOT MEAN THAT THE CLASSIFICATION IS VEGET ABLE AND IT ONLY REFERS TO THE REPRODUCTIVE FEATURE OF THE FUNGI. A MUS HROOM OR TOADSTOOL, IS THE FLESHY, SPORE-BEARING FRUITING BODY OF A FUNGUS , TYPICALLY PRODUCED ABOVE GROUND ON SOIL OR ON ITS FOOD SOURCE AND THE SCIENTIFIC CLASSIFICATION IS KINGDOM; FUNGI, DIVISION. BASIDIOMYCOTA (WIKIP EDIA). 14.2. ON A CAREFUL CONSIDERATION OF THE MATERIAL O N RECORD, WE CONCLUDE THAT MUSHROOM, IS NOT A VEGETABLE PLANT OR AN ANIMAL BUT A FUNGUS. 14.3. THE CONTENTION OF THE ASSESSEE IS THAT, WHAT IS PRODUCED BY PERFORMING BASIC OPERATIONS ON THE SOIL, IS AN AGRI CULTURAL PRODUCT, EVEN THOUGH THE PRODUCT IS NOT A PLANT OR THE FLOWER OR A VEGETABLE OR A FRUIT. IT WAS EMPHASIZED THAT THE NATURE OF THE PRODUCT IS IRRELEVANT AS FAR AS IT IS PRODUCED BY PERFORMING SOME BASIC OPER ATIONS ON THE SOIL. 14.4. IN THE CASE OF CIT VS. RAJA BENOY KUMAR SAHA S RAY (SUPRA), AS ALREADY STATED, IT IS LAID DOWN THAT THE PRODUC T SHOULD BE RAISED ON THE LAND BY PERFORMING SOME OPERATION ON LAND BY EXPENDITURE OF :49: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 HUMAN SKILL AND LABOUR AND THAT THE PRODUCT SHOU LD BE OF SOME UTILITY FOR CONSUMPTION, FOR TRADE AND COMMERCE. 14.5. THE TERM PRODUCT IS DEFINED AS: A) AN ARTICLE OF SUBSTANCE I.E. MANUFACTURED OR RE FINED FOR SALE. B) A THING OR PERSON THAT IS THE RESULT OF AN ACTI ON OR PROCESS. C) A PRODUCT IN MODERN TIMES IS ALSO DEFINED AS A ITEM OR THING WHICH IS OFFERED FOR SALE. A PRODUCT CAN BE A SERVICE OR AN ITEM. IT CAN BE PHYSICAL OR IN VIRTUAL OR CYBER FORM. 14.6. IT IS CLEAR THAT WE CANNOT RESTRICT THE WORD PRODUCT TO PLANTS, FRUITS, VEGETABLES OR SUCH BOTANICAL LIFE ONLY. THE ONLY CONDITION IS THAT THE PRODUCT IN QUESTION SHOULD BE RAISED ON THE LAND BY PERFORMING SOME BASIC OPERATIONS. MUSHROOM PRODUCED BY THE ASSESSEE IS A PRODUCT. THIS PRODUCT IS RAISED ON LAND/SOIL, BY PERFORMING CERTAIN BASIC OPERATION. THE PRODUCT DRAWS NOURISHMENT FROM THE SOIL AND IS NATURALLY GROWN, BY SUCH OPERATION ON SOIL WHICH RE QUIRE EXPENDITURE OF HUMAN SKILL AND LABOUR. THE PRODUCT SO RAISED HAS UTILITY FOR CONSUMPTION, TRADE AND COMMERCE AND HENCE WOULD QUA LIFY AS AN AGRICULTURAL PRODUCT THE SALE OF WHICH GIVES RISE TO AGRICULTURAL INCOME. 14.7. MUSHROOM, LIKE VEGETABLES AND OTHER CROPS OR PLANTS ARE GROWN ON SOIL/LAND AND ARE ALWAYS ATTACHED TO THE S OIL UNTIL HARVESTED. THEY DRAW THEIR NOURISHMENT FROM THE SOIL ONLY. THE PRODUCT MUSHROOM DOES NOT ARISE FROM ANY SECONDARY AGRICULTURAL OPER ATION. UNLIKE IN THE CASE OF CIT VS. KOKINE DAIRY (1938) 6 ITR 502, RELI ED ON BY THE LD.AO IT :50: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 CANNOT BE SAID THAT PRODUCTION OF MUSHROOM IS REMOT ELY CONNECTED WITH LAND. THIS PRODUCT ARISES FROM LAND AND IS ATTACHED TO LAND DURING GROWTH AND THEREAFTER, JUST LIKE PLANTS OR A CROP. COM PARISON MADE BY THE LD.AO WITH SALE OF SILK COCOONS BY RELYING ON THE JUDGMEN T IN THE CASE OF K.LAKSHMANSA & CO. VS. CIT [1981] 128 ITR 283 (KAR. ), IS WRONG, AS ON FACTS SILKWORMS FEED ON MULBERRY LEAVES AND ARE NOT PRODUCTS WHICH ARE RAISED FROM LAND. MULBERRY LEAVES WHICH ARE PRODUCT ARISING FROM LAND, ARE FODDER TO SILK WORMS. 14.8. HENCE, WE CONCLUDE THAT MUSHROOM ON THE FACT S AND CIRCUMSTANCES OF THIS CASE IS AN AGRICULTURAL PRODU CT RAISED FROM LAND. 15. THE THIRD ISSUE IS WHETHER AGRICULTURAL PRODUC TION DONE UNDER CONTROLLED CONDITIONS, RESULTS IN THE PROD UCT SO RAISED NOT BEING A PRODUCT FROM AGRICULTURAL ACTIVITY. 15.1. EACH AND EVERY AGRICULTURAL OPERATION INVOLV ES CERTAIN PROCEDURES AND PROTOCOLS. CERTAIN CONDITIONS ARE N ECESSARY FOR NATURAL GROWTH OF THE PRODUCT. THE DEGREE OF CONTROL AND T HE TYPE OF SCIENTIFIC INPUT DIFFERS FROM PRODUCT TO PRODUCT. THE TYPE OF SOIL TO BE USED, THE NATURE OF AGRICULTURAL OPERATIONS TO BE UNDERTAKEN, MATERIAL REQUIRED TO BE USED TO ENRICH THE SOIL, THE TIMING OF SOWING, T RANSPLANTING, HARVESTING ETC., THE QUANTITY AND QUALITY OF INPUTS SUCH AS WA TER, FERTILIZER, PESTICIDES ETC. TO BE USED AND THE TIMING AT WHICH THEY HAVE T O BE USED, ARE ALL CONTROLS THAT A FARMER EXERCISES IN EVERY TYPE OF A GRICULTURAL ACTIVITY. THERE CAN BE NO AGRICULTURE WITHOUT CONTROLLING THE CONDITIONS OF PRODUCTION BY HUMAN INTERVENTION. JUST BECAUSE THE DEGREE OF CONTROL OF :51: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 THE CONDITIONS ARE GREATER IN SOME CASES, AS COMPAR ED TO OTHERS, THE PRODUCT PRODUCED OUT OF SUCH PROCESS WOULD NOT CEAS E TO BE AN AGRICULTURAL PRODUCT. THE DEGREE OF CONTROL IS IRR ELEVANT IN ARRIVING AT A CONCLUSION ON THIS ISSUE. WITH THE ADVANCEMENT OF T ECHNOLOGY, EVERY ASPECT OF PRODUCTION IS MONITORED AND CONTROLLED, S O AS TO OBTAIN OPTIMUM USE OF THE PRODUCE. THIS IS TRUE WITH THE USE OF GREENHOUSE TECHNOLOGIES. 15.2. THE ITAT PUNE BENCH IN THE CASE OF ASST. CIT V. KF BIO PLANTS (P.) LTD. [PUNE BENCH A, ITA NO. 1110/PN/2011] HELD THAT THE NATURE OF AGRICULTURAL INCOME WOULD NOT CHANGE MERELY BECAUSE AGRICULTURAL OPERATION WAS CARRIED OUT IN A GREENHOUSE UNDER A C ONTROLLED ENVIRONMENT. THE ASSESSEE IN THAT CASE WAS ENGAGED IN THE BUSINESS OF PLANT FLORICULTURE AND TISSUE CULTURE, AND CLAIMED EXEMPTION OF INCOME AS BEING AGRICULTURAL INCOME UNDER SECTION 10(1) OF TH E ACT. THE A.O. DISALLOWED THE EXEMPTION ON THE GROUND THAT BASIC O PERATION WAS DONE IN A GREENHOUSE. THE ITAT HELD THAT THE INVOLVEMENT OF A GREENHOUSE AND CONTROLLED ENVIRONMENT WOULD NOT CHANGE THE NATURE OF AGRICULTURAL INCOME. WE ENDORSE THIS VIEW. 15.3. THE ITAT AHMEDABAD BENCH A DECISION IN THE CASE OF DCIT V. BEST ROSES BIOTECH (P.) LTD., (SUPRA) HAS ANALYZ ED THE ADVANCED MECHANISM OF GROWING ROSE PLANTS IN A CONTROLLED EN VIRONMENT AND HELD AS UNDER: 7.2 CONSIDERING THE ADVANCEMENT OF TECHNOLOGY AND THE USE OF THE ADVANCED EQUIPMENT IN CULTIVATION COUPLED WITH THE CONVENTIONAL CULTIV ATION METHOD PUT TOGETHER, IT HAS TO BE HELD THAT THE OPERATION CARRIED OUT BY THE ASSESSEE WAS AGRICULTURAL OPERATION IN NATURE. :52: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 THEREFORE, THE INCOME IN QUESTION WAS AN AGRICULTUR AL INCOME. IT CANNOT BE INCLUDED IN TOTAL INCOME BEING WITH THE AMBITS OF THE PROVISION S OF SECTION 10(1). WE CONCUR WITH THIS VIEW. 15.4. WITH THE ADVANCEMENT OF MODERN TECHNOLOGY, W E FIND THAT MOST OF THE CROPS, FRUITS, VEGETABLES AND FLOWERS A RE BEING GROWN IN CONTROLLED CONDITIONS, IN GREEN HOUSES AND IN POTS. IN THESE ADVANCED SCIENTIFIC AGRICULTURAL TECHNIQUES, SOIL IS REMOVED FROM THE LAND AND IS PLACED IN DIFFERENT CONTAINERS SUCH AS POTS, TRAYS AND STANDS ETC. AND AGRICULTURAL OPERATIONS ARE PERFORMED ON THEM TO YI ELD THE DESIRED RESULTS OF PRODUCTION OF PRODUCTS WHICH HAVE SOME U TILITY. 15.5. IN VIEW OF THE ABOVE DISCUSSION WE HOLD T HAT, JUST BECAUSE MUSHROOMS ARE GROWN IN CONTROLLED CONDITIONS IT DOE S NOT NEGATE THE CLAIM OF THE ASSESSEE THAT THE INCOME ARISING FROM THE SALE OF SUCH MUSHROOMS IS AGRICULTURAL INCOME. 16. WE NOW DISCUSS THE OTHER CONTENTIONS RAISED BY THE PARTIES. THE ASSESSEE SUBMITS THAT THE GOVT. AUTHORITIES AND FINANCIAL INSTITUTIONS TREATED GROWING OF MUSHROOMS AS AGRICU LTURE. THAT FOR THE PURPOSE OF MUSHROOM CULTIVATION, THE A SSESSEE COMPANY BORROWED FUNDS FROM STATE BANK OF HYDERABAD WITH GUIDANCE PROVIDED BY NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) AND THE LOANS SANCTIONED ARE A GRICULTURAL LOANS. :53: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 NABARD CONDUCTED SURVEY AND OBSERVED THAT MUSHROOMS ARE FRUITING BODIES OF SOME MEMBERS OF LOWER GROUP OF P LANTS. THEY ARE FLESHY SPORE BEARING STRUCTURES CONTAINING NUMEROUS SPORES WHICH ARE FUNCTIONALLY SIMILAR TO SEEDS OF HIGHER PLANTS. THEY ARE USED IN REPRODUCTION OF MUSHROOMS. AFTER CONDUCTING THE STU DIES, THE NABARD CERTIFIED MUSHROOM CULTIVATION AS AN AGRICUL TURAL OPERATION AND KEPT THE SAME UNDER 'AGRICULTURAL' SE GMENT. THAT FOR THE PURPOSE OF COMMENCEMENT OF PRODUCTION ACTIVITY, THE ASSESSEE REQUIRES A CERTIFICATION FROM THE MINISTRY OF COMMERCE AND INDUSTRY, GOVT. OF INDIA. THE SAID MINISTRY ALS O CATEGORIZED ACTIVITY AS 'OTHER AGRICULTURAL INDUSTRY'. THE ASSE SSEE IS ALSO GRANTED LICENCE BY THE FRUIT PRODUCTS ORDER, 1995 B Y THE MINISTRY OF FOOD PROCEEDINGS INDUSTRIES, GOVERNMENT OF INDIA . THE THE CENTRAL EXCISE DEPARTMENT CLASSIFIED IN CHA PTER 7 THAT THE MUSHROOMS ARE EDIBLE VEGETABLES AND DID NOT LEVY AN Y TAX ON THE ASSESSEE. THE MINISTRY OF AGRICULTURE, GOVERNMENT OF INDIA CA TEGORIZED MUSHROOM CULTIVATION AS THE AGRICULTURAL OPERATION. VARIOUS UNIVERSITIES IN INDIA AND ABROAD ALSO TREATED THE M USHROOM CULTIVATION AS AN AGRICULTURAL OPERATIONS. 16.1. THE LD. STANDING COUNSEL SUBMITS THAT, THE V IEW OF VARIOUS GOVERNMENT AND FINANCIAL INSTITUTIONS, SHOULD NOT I NFLUENCE THE INTERPRETATION OF A STATUTE. SHE SUBMITS THAT THE S TATUTE HAS TO BE :54: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 INTERPRETED BASED ON THE LANGUAGE USED THEREIN AND NOT BASED ON VIEWS OF UNIVERSITIES AND OTHER ORGANISATIONS. 16.2. WORDS OF THE STATUTE, WHEN NOT DEFINED, HAVE TO BE CONSTRUED AND UNDERSTOOD IN THEIR POPULAR SENSE AND ACCORDING TO THEIR ORDINARY MEANING. NO DOUBT, STATUTE CANNOT BE INTERPRETED BA SED ON THE VIEWS OF DIFFERENT GOVERNMENTAL AUTHORITIES AND FINANCIAL IN STITUTIONS, AS THEIR PURPOSE AND INTENT WOULD BE DIFFERENT, FROM THE PUR POSE AND INTENT OF THE ENACTMENT IN QUESTION. BUT THE MANNER IN WHICH OTHE R GOVERNMENT AUTHORITIES AND AGENCIES VIEWS THIS ISSUE, CAN BE G ATHERED AND UNDERSTOOD FROM THIS MATERIAL. A COMMON MANS VIEW, AS EXPRESS ED BY THE ORGANISATIONS, HAVE SOME USE IN COMING TO A CONCLUS ION ON THIS ISSUE. IT WOULD NOT BE APPROPRIATE TO HOLD THAT DIFFERENT ARM S OF THE GOVERNMENT HAVE CONTRARY VIEWS ON THE SAME ISSUE. 16.3. NOW WE CONSIDER THE ARGUMENT OF THE LD. STAN DING COUNSEL BY PLACING RELIANCE ON SECTION 80JJA OF THE ACT. TH E ASSESSEE RELIES ON EXPLANATION 3 INSERTED IN SECTION 2(1A) OF THE ACT. MUCH WATER HAS FLOWN SINCE THE INTRODUCTION AND REPEAL OF SECTION 80JJA. WITH THE PASSAGE OF TIME THE VIEWS CHANGE. WE ARE OF THE OPINION THAT T HE CONCLUSION ON THIS ISSUE CANNOT BE GUIDED BY THIS SECTION 80JJA OF THE ACT. 16.4. THE ORDER OF THE BANGALORE BENCH OF THE TRIB UNAL IN THE CASE OF BLUE MOUNTAIN VS. ITO (1985) 14 ITD 254 (BANG.), DOES NOT DISCUSS THE ISSUE IN QUESTION AND HENCE NOT RELEVANT. THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. MALHOTRA MUKESH SATPAL (200 8) 115 ITD 467 :55: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 (PUNE), IS ON THE ISSUE OF LEVY OF PENALTY U/S 271( 1)(C) AND HENCE NOT RELEVANT. THE DECISION OF THE CHANDIGARH BENCH OF T HE TRIBUNAL IN THE CASE OF RACHNA DOGRA (SUPRA) IS ALSO NOT RELEVANT, AS TH E OBSERVATIONS ON THE ISSUE IN QUESTION ARE ONE OF SUB SILENTIO. 16.5. THE CHANDIGARH A BENCH OF THE ITAT IN THE CASE OF CHANDER MOHAN V. ITO IN ITA NO. 389.377/CHD/2012, ORDER DT. 28.10.2014, IN OUR VIEW, DOES NOT LAY DOWN THE CORRECT LAW IN THE FACT S AND CIRCUMSTANCES OF THE CASE. IN ANY EVENT, THE TYPE OF MUSHROOM GROWN IN THAT CASE AND THE PLACE AT WHICH IT WAS GROWN AND THE FACT THAT THE P ROCESS OF GROWTH WAS NOT PROPERLY EXPLAINED. AS THE DIVISION BENCH HAS N OT AGREED WITH THIS VIEW OF THE PUNE BENCH OF THE ITAT, THIS ISSUE WAS REFERRED TO THIS LARGER BENCH. 16.6. HENCE AS BASIC OPERATIONS ARE PERFORMED BY E XPENDITURE OF HUMAN SKILL AND LABOUR ON LAND BY THE ASSESSEE, WHI CH RESULTS IN THE RAISING OF THE PRODUCT CALLED EDIBLE WHITE BUTTO N MUSHROOM ON THE LAND AND AS THIS PRODUCT HAS UTILITY FOR CONSUMPTIO N, TRADE AND COMMERCE, THE INCOME ARISING FROM THE SALE OF THIS PRODUCT IS AGRICULTURAL INCOME AND HENCE EXEMPT U/S 10(1) OF THE ACT. 16.7. THUS WE UPHOLD THE ORDER OF THE LD. CIT(A) O N THIS ISSUE. 17. IN VIEW OF THE ABOVE DISCUSSION, WE ANSWER THE QUESTION REFERRED TO US BY THE HONBLE PRESIDENT IN THE AFFI RMATIVE, IN FAVOUR OF THE ASSESSEE. :56: ITA NOS. 1015 TO 1018/HYD/2015 C.O. NOS. 53 TO 56/HYD/2015 18. BEFORE PARTING, WE PLACE ON RECORD OUR APPRECI ATION FOR THE EXCELLENT CONTRIBUTION OF THE LD. STANDING COUNSEL MS. K. MAMATA CHOUDARY AND THE LD. COUNSELS FOR THE ASSESSEE SHRI S. RAMA RAO AND SHRI K. GOPAL. 19. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AND CROSS- OBJECTIONS OF THE ASSESSEE ARE DISMISSED FOR ALL TH E FOUR ASSESSMENT YEARS. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JULY, 2018 SD/- SD/- S D/- ( D. MANMOHAN) (P. MADHAVI DEVI) (J. SUDHAKA R REDDY) VICE PRESIDENT JUDICIAL MEMBER ACCOUNTA NT MEMBER HYDERABAD, DATED 9 TH JULY, 2018 SHAMIK CHAKRAVORTY, SR. P.S. AND PV VINODAN & MURALI MOHAN , SR.PS COPY TO : 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD. 2. M/S. INVENTAA INDUSTRIES PRIVATE LIMITED, (EARLI ER KNOWN AS M/S. INVENTAA CHEMICALS LIMITED), D.NO. 10-91, OPP: IDPL COLONY, SOWBHAGYANAGAR, HYDERABAD. 3. CIT(APPEALS)-2, HYDERABAD. 4. PR.CIT-2, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.