I grow button mushrooms in trays under controlled temperature in a shed and claim the income as agricultural income under s.10(1). The Assessing Officer says it is business income. Where does that stand?
Against you, in the Madras High Court. The Court held that income from the sale of white button mushrooms grown in a factory under controlled conditions does not fall within any of the three limbs of s.2(1A) and so is not exempt under s.10(1), allowed the Revenue's appeals and answered both substantial questions against the assessee. That result is squarely opposed to the Hyderabad Special Bench in DCIT v. Inventaa Industries Pvt. Ltd., which the Tribunal below had followed, and appeals against Inventaa were recorded as still pending before the Telangana High Court.
Decided by the High Court (R. Suresh Kumar J and C. Saravanan J) on 2025-05-09, reported as T.C.A. Nos. 499 and 500 of 2023 and C.M.P. No. 22213 of 2023; neutral citation 2025:MHC:1208; reserved 9 September 2024, pronounced 9 May 2025. It bears on section 2(1A), section 10(1), section 2(14)(iii), section 139(1), section 139(4), section 143(3), section 260A of the Income Tax Act 1961, in Capital Gains Exemptions, How Tax Law Is Read and Appeals matters.
This is a live, unsettled and expensive question, and the entry is here so that nobody advises a client that Inventaa settles it. The Special Bench held mushroom to be an agricultural product raised from land; the Madras High Court said the Special Bench had not examined the issue from the point of view of the definition in s.2(1A) at all and reached the opposite conclusion. The Court's route is worth understanding because it is transferable: it took s.2(1A) apart into its three sub-clauses and asked, of each, whether the income answered it. Sub-clause (a) needs rent or revenue derived from land used for agricultural purposes; sub-clause (b) needs income derived from SUCH land by agriculture, or by a marketing process performed by a cultivator or receiver of rent-in-kind, or by the sale by such a person of the produce so raised or received; sub-clause (c) needs income from a building occupied by one of those persons. On the Court's finding the mushrooms were not raised on land at all but cultured in a factory, so none of the three could be satisfied. The most practically important sentence is at para 56: the Court accepted that the position would have been different had the mushrooms been grown by a farmer and then processed by the assessee to make them marketable, which points to how a grower-plus-processor structure is analysed. The judgment is also the most convenient current source for the text of s.2(1A) including Explanation 3 on nursery saplings and seedlings, and for s.2(14)(iii) as substituted by the Finance Act 2013 with the words 'measured aerially'.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessment years were 2017-18 and 2018-19. The assessee company, incorporated in 2017-18, cultivated white button mushrooms. Its process, as described by its counsel, was that soil was mixed with clay, paddy straw and chicken manure, loaded into large trays, and spawn cultured from matured mushrooms placed in the prepared soil, followed by ruffling and scratching the soil, watering, use of fungicide, pesticide and bactericide, weeding, disease control, pruning, declustering, removal of undesirable undergrowth, and after harvest cold storage and despatch. For 2017-18 it first returned the income from mushroom sales as business income on 5 November 2017 and claimed depreciation on plant and machinery, then on 31 October 2018 filed a revised return under s.139(4) declaring nil income from that source, following the Hyderabad Special Bench decision in Inventaa Industries of 9 July 2018. For 2018-19 it returned Rs 72,19,468 as total income from other products and claimed Rs 11,44,54,027 as agricultural income exempt under s.10(1). Assessments under s.143(3) dated 28 December 2019 and 23 September 2021 treated the mushroom income as business income. The Commissioner (Appeals), NFAC, allowed the appeals on 12 September 2022 following Inventaa, and the Chennai Tribunal dismissed the Department's appeals by common order dated 5 April 2023 in ITA Nos. 969 and 970/Chny/2022 on the same ground. The Department appealed under s.260A on two substantial questions: whether mushroom income is agricultural income when a mushroom is a fungus rather than a plant, fruit or vegetable, and whether growing mushrooms in trays under artificial climate conditioning falls within s.2(1A) at all.
Both Tax Case Appeals were allowed with no costs and both substantial questions were answered against the assessee and in favour of the Department. Income from the sale of button mushrooms from a factory under controlled conditions does not come within the definition of agricultural income in s.2(1A) for the purposes of s.10(1) (para 57). The Special Bench decision in Inventaa Industries was held inapplicable to these facts (para 59).
The Court set out s.2(1A) in full with its four Explanations and held that there are three parts to the definition (paras 29 and 30). Sub-clause (a) covers rent or revenue derived from land situated in India and used for agricultural purposes; the sine qua non is that the income be derived from land used for agricultural purposes, and this assessee's income was not (paras 35 to 38). Sub-clause (b) covers income derived from 'such land' — meaning agricultural land used for an agricultural purpose — by agriculture, or by a process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce fit to be taken to market, or by the sale by such a person of produce so raised or received (paras 39 to 43). The Court held the activity answered none of those three, because the mushrooms were not raised on land used for agricultural purposes but cultured in a factory under controlled conditions (paras 44 to 47). Sub-clause (c) covers income from a building owned and occupied by the receiver of rent or revenue of such land or by the cultivator or receiver of rent-in-kind, with respect to which a process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on; the Court held that neither the building limb nor the underlying process limb was satisfied (paras 48 to 54). It added that the position would have been different had the mushrooms been grown by a farmer and thereafter processed by the assessee to make them marketable (para 56). As to Inventaa, the Court said that although the Special Bench had given a detailed order it had not examined the issue from the point of view of the definition in s.2(1A), and that the Tribunal below, as the final fact-finding authority, ought to have given a clear finding on the facts by reference to that definition rather than simply following the Special Bench (paras 28 and 58).
Therefore, income from sale of 'Button Mushrooms' from a factory under a controlled condition will not come within the purview of the definition of "Agricultural Income" within the meaning of Section 2(1A) of the Act for the purpose of Section 10(1) of the Act.
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Handle my notice → Ask a CA on WhatsAppAgainst you, in the Madras High Court. The Court held that income from the sale of white button mushrooms grown in a factory under controlled conditions does not fall within any of the three limbs of s.2(1A) and so is not exempt under s.10(1), allowed the Revenue's appeals and answered both substantial questions against the assessee. That result is squarely opposed to the Hyderabad Special Bench in DCIT v. Inventaa Industries Pvt. Ltd., which the Tribunal below had followed, and appeals against Inventaa were recorded as still pending before the Telangana High Court. This was decided by the High Court (R. Suresh Kumar J and C. Saravanan J) and bears on section 2(1A), section 10(1), section 2(14)(iii), section 139(1), section 139(4), section 143(3), section 260A of the Income Tax Act 1961. It is reported as T.C.A. Nos. 499 and 500 of 2023 and C.M.P. No. 22213 of 2023; neutral citation 2025:MHC:1208; reserved 9 September 2024, pronounced 9 May 2025. This is a live, unsettled and expensive question, and the entry is here so that nobody advises a client that Inventaa settles it. The Special Bench held mushroom to be an agricultural product raised from land; the Madras High Court said the Special Bench had not examined the issue from the point of view of the definition in s.2(1A) at all and reached the opposite conclusion. The Court's route is worth understanding because it is transferable: it took s.2(1A) apart into its three sub-clauses and asked, of each, whether the income answered it. Sub-clause (a) needs rent or revenue derived from land used for agricultural purposes; sub-clause (b) needs income derived from SUCH land by agriculture, or by a marketing process performed by a cultivator or receiver of rent-in-kind, or by the sale by such a person of the produce so raised or received; sub-clause (c) needs income from a building occupied by one of those persons. On the Court's finding the mushrooms were not raised on land at all but cultured in a factory, so none of the three could be satisfied. The most practically important sentence is at para 56: the Court accepted that the position would have been different had the mushrooms been grown by a farmer and then processed by the assessee to make them marketable, which points to how a grower-plus-processor structure is analysed. The judgment is also the most convenient current source for the text of s.2(1A) including Explanation 3 on nursery saplings and seedlings, and for s.2(14)(iii) as substituted by the Finance Act 2013 with the words 'measured aerially'. If it applies to you, the first step is this: Identify which sub-clause of s.2(1A) you are actually on and plead it. An assertion that an activity 'is agriculture' without naming the limb is what the Court found wanting.
The assessment years were 2017-18 and 2018-19. The assessee company, incorporated in 2017-18, cultivated white button mushrooms. Its process, as described by its counsel, was that soil was mixed with clay, paddy straw and chicken manure, loaded into large trays, and spawn cultured from matured mushrooms placed in the prepared soil, followed by ruffling and scratching the soil, watering, use of fungicide, pesticide and bactericide, weeding, disease control, pruning, declustering, removal of undesirable undergrowth, and after harvest cold storage and despatch. For 2017-18 it first returned the income from mushroom sales as business income on 5 November 2017 and claimed depreciation on plant and machinery, then on 31 October 2018 filed a revised return under s.139(4) declaring nil income from that source, following the Hyderabad Special Bench decision in Inventaa Industries of 9 July 2018. For 2018-19 it returned Rs 72,19,468 as total income from other products and claimed Rs 11,44,54,027 as agricultural income exempt under s.10(1). Assessments under s.143(3) dated 28 December 2019 and 23 September 2021 treated the mushroom income as business income. The Commissioner (Appeals), NFAC, allowed the appeals on 12 September 2022 following Inventaa, and the Chennai Tribunal dismissed the Department's appeals by common order dated 5 April 2023 in ITA Nos. 969 and 970/Chny/2022 on the same ground. The Department appealed under s.260A on two substantial questions: whether mushroom income is agricultural income when a mushroom is a fungus rather than a plant, fruit or vegetable, and whether growing mushrooms in trays under artificial climate conditioning falls within s.2(1A) at all. The matter was decided on 2025-05-09 by the High Court (R. Suresh Kumar J and C. Saravanan J). On those facts the High Court held as follows. Both Tax Case Appeals were allowed with no costs and both substantial questions were answered against the assessee and in favour of the Department. Income from the sale of button mushrooms from a factory under controlled conditions does not come within the definition of agricultural income in s.2(1A) for the purposes of s.10(1) (para 57). The Special Bench decision in Inventaa Industries was held inapplicable to these facts (para 59).
The Court set out s.2(1A) in full with its four Explanations and held that there are three parts to the definition (paras 29 and 30). Sub-clause (a) covers rent or revenue derived from land situated in India and used for agricultural purposes; the sine qua non is that the income be derived from land used for agricultural purposes, and this assessee's income was not (paras 35 to 38). Sub-clause (b) covers income derived from 'such land' — meaning agricultural land used for an agricultural purpose — by agriculture, or by a process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce fit to be taken to market, or by the sale by such a person of produce so raised or received (paras 39 to 43). The Court held the activity answered none of those three, because the mushrooms were not raised on land used for agricultural purposes but cultured in a factory under controlled conditions (paras 44 to 47). Sub-clause (c) covers income from a building owned and occupied by the receiver of rent or revenue of such land or by the cultivator or receiver of rent-in-kind, with respect to which a process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on; the Court held that neither the building limb nor the underlying process limb was satisfied (paras 48 to 54). It added that the position would have been different had the mushrooms been grown by a farmer and thereafter processed by the assessee to make them marketable (para 56). As to Inventaa, the Court said that although the Special Bench had given a detailed order it had not examined the issue from the point of view of the definition in s.2(1A), and that the Tribunal below, as the final fact-finding authority, ought to have given a clear finding on the facts by reference to that definition rather than simply following the Special Bench (paras 28 and 58). In the words reproduced by the source cited on this page: "Therefore, income from sale of 'Button Mushrooms' from a factory under a controlled condition will not come within the purview of the definition of "Agricultural Income" within the meaning of Section 2(1A) of the Act for the purpose of Section 10(1) of the Act." The decision followed or applied DCIT v. M/s. Inventaa Industries Private Limited (2018) 65 ITR 625 (Hyd.) (Special Bench) — held inapplicable; the Court recorded that appeals against it, I.T.A. Nos. 58, 70, 74 and 100 of 2019, were pending before the Telangana High Court; CIT v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC) — cited by both sides; CIT v. Soundarya Nursery (2000) 241 ITR 530 (Mad.) — cited by both sides.
It was decided by the High Court on 2025-05-09 and is reported as T.C.A. Nos. 499 and 500 of 2023 and C.M.P. No. 22213 of 2023; neutral citation 2025:MHC:1208; reserved 9 September 2024, pronounced 9 May 2025. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 2(1A), section 10(1), section 2(14)(iii), section 139(1), section 139(4), section 143(3), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Both Tax Case Appeals were allowed with no costs and both substantial questions were answered against the assessee and in favour of the Department. Income from the sale of button mushrooms from a factory under controlled conditions does not come within the definition of agricultural income in s.2(1A) for the purposes of s.10(1) (para 57). The Special Bench decision in Inventaa Industries was held inapplicable to these facts (para 59). It arises in Capital Gains Exemptions, How Tax Law Is Read and Appeals matters, on section 2(1A), section 10(1), section 2(14)(iii), section 139(1), section 139(4), section 143(3), section 260A of the Income Tax Act 1961, and was decided by R. Suresh Kumar J and C. Saravanan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If you are outside the Madras jurisdiction and relying on Inventaa, say so expressly, disclose this judgment, and note that the Telangana High Court appeals against Inventaa were recorded at paras 8 and 27 as pending. Do not present the point as settled either way. Where the produce is raised on soil and the soil is the medium, put evidence of the basic operations on record — preparation, sowing or spawning in soil, and the operations performed on the land itself — because the Court's finding was that this produce was not raised on land. Consider the structure the Court itself flagged at para 56: produce grown by a farmer and thereafter processed by the taxpayer to render it marketable is analysed differently under s.2(1A)(b)(ii) and (c). Watch the mismatch the Revenue exploited at para 9: this taxpayer had originally returned the income as business income, claimed depreciation on plant and machinery, and only later revised to claim exemption. An inconsistent history invites the argument.
Validity check could not be completed. Validity check could not be completed, and the underlying question is contested. The judgment itself records at paras 8 and 27 that appeals against the Hyderabad Special Bench decision in Inventaa Industries — I.T.A. Nos. 58, 70, 74 and 100 of 2019 — were pending before the Telangana High Court when this judgment was delivered on 9 May 2025; whether those have since been decided was not checked, nor was it checked whether a special leave petition has been filed against this judgment. Indiankanoon's search endpoint returned HTTP 429 on the citator queries attempted. The label 'high courts differ' has deliberately NOT been used: the conflict as it stands is between a High Court and a Tribunal Special Bench, not between two High Courts. A practitioner outside Tamil Nadu should treat the point as open and disclose both decisions. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read from the indiankanoon print view. Two passages were NOT reproduced by the source and could not be read: the extensive findings of the Special Bench in Inventaa Industries set out at para 7, which the transcription rendered as '(Extensive findings section omitted for brevity)', and the table at para 33 in which the Court dissects s.2(1A), rendered as '[Table structure provided in original omitted for format]'. A later pass should retrieve those two portions from the Madras High Court's own site under neutral citation 2025:MHC:1208 before relying on anything the Court said about Inventaa's reasoning. The judgment carries several spelling slips in the source ('temprature', 'Buttom Mushrooms', 'depriciation', 'Karim Pharuvi Tea Estates' for Karimtharuvi Tea Estates, 'laibility'); these are as printed. The disposal sentence and the ratio sentence at para 57 were confirmed separately through the phrase-fragment index. The Court refers at para 56 to income being claimed as 'Assessable Income' within s.2(1A)(c), which appears to be a slip for agricultural income. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both Tax Case Appeals were allowed with no costs and both substantial questions were answered against the assessee and in favour of the Department. Income from the sale of button mushrooms from a factory under controlled conditions does not come within the definition of agricultural income in s.2(1A) for the purposes of s.10(1) (para 57). The Special Bench decision in Inventaa Industries was held inapplicable to these facts (para 59).
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