ISSUE

Whether agricultural income can be earn without agricultural land?

Use of land and performing activity on land itself, is the requirement specified for a natural product that raises from land itself, to be an agricultural product, the income from which is exempt from tax.

‘Soil’ is a part of the land. Land is also part of earth. The upper strata of the land is soil and this is cultured 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 cease to be land and when operations are carried out on this “soil”, it would be agricultural activity carried upon land itself.

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 land and hence “land” for the sole purpose of determining whether activity performed on such land is for production of an agricultural product.

Any income arising from the sale of items which are producing on soil, is considered as a income arising from agriculture.

Income—Agricultural income—Exemption—Assessee treated income from growing mushrooms as income from agriculture and hence exempt u/s. 10(1)— AO held that agricultural production done under controlled conditions resulted in product so raised not being a product from agricultural activity—CIT(A) set aside order of AO holding that activity undertaken by assessee could be considered as agricultural activity and assessee was entitled for exemption—Held, each and every agricultural operation involved certain procedures and protocols—Certain conditions were necessary for natural growth of product—Type of soil to be used, nature of agricultural operations to be undertaken, material required to be used to enrich soil, timing of sowing, transplanting, harvesting etc., quantity and quality of inputs such as water, fertilizer, pesticides etc. to be used and timing at which they have to be used, were all controls that farmer exercised in every type of agricultural activity—There could be no agriculture without controlling conditions of production by human intervention—Most of crops, fruits, vegetables and flowers were being grown in controlled conditions, in green houses and in pots—In advanced scientific agricultural techniques, soil was removed from land and was placed in different containers such as pots, trays and stands etc. and agricultural operations were performed on them to yield desired results of production of products which have some utility—Just because mushrooms were grown in controlled conditions it did not negate claim of assessee that income arising from sale of such mushrooms was agricultural income—Activity performed by assessee should be considered as agricultural activity—As basic operations were performed by expenditure of human skill and labour on land by assessee, which resulted in raising of product Edible white button mushroom on land and as this product had utility for consumption, trade and commerce, income arising from sale of this product was agricultural income and hence exempt u/s 10(1)—Revenue’s ground dismissed.    

Each and every agricultural operation involves certain procedures and protocols. Certain conditions are necessary for natural growth of the product. The degree of control and the 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, transplanting, harvesting etc., the quantity and quality of inputs such as water, fertilizer, pesticides etc. to be used and the timing at which they have to be used, are all controls that a farmer exercises in every type of agricultural activity. There can be no agriculture without controlling the conditions of production by human intervention.

With the advancement of modern technology, we find that most of the crops, fruits, vegetables and flowers are 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 yield the desired results of production of products which have some utility.

In view of the above discussion we hold that, just because mushrooms are grown in controlled conditions it does not negate the claim of the assessee that the income arising from the sale of such mushrooms is agricultural income.

Hence as basic operations are performed by expenditure of human skill and labour on land by the assessee, which results in the raising of the ‘product’ called “Edible white button mushroom” on the land and as this product has utility for consumption, 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.