1. The assessee is carrying on business of manufacture of canned products, fruits and mushrooms, etc. He claimed depreciation at 15 per cent on the shed in which mushrooms are grown. The ITO allowed depreciation at 7.5 per cent as applicable to third class building negativing the assessee's claim that the shed as a factory building was entitled to depreciation at twice the normal rate. The Commissioner (Appeals) also confirmed the order of the ITO. The assessee is in appeal.
2. It is claimed that the activity of growing mushrooms under controlled conditions has been accepted as a manufacturing activity. It followed, therefore, that the shed in which mushrooms are grown has to be treated as a factory building and depreciation has to be allowed at twice the normal rate. The learned departmental representative opposed this contention stating that muchroom growing was an agricultural activity and further, no articles were manufactured or processed to enable the ITO to treat the shed as a factory.
3. Section 80JJA of the Income-tax Act, 1961, has been introduced by the Finance Act, 1979 with effect from 1-4-1980. The memorandum explaining the provisions in the Finance Bill, 1979, states as follows : 81. Exemption from income-tax 8f income from mushroom growing under controlled conditions.-Under the existing provisions, 'agricultural income' is exempt from income-tax. For this purpose, 'agricultural income' includes, inter alia, any income derived from land situated in India and used for agricultural purposes. Where cultivation of mushrooms is undertaken in rooms or sheds with soil put in wooden beds, income derived therefrom cannot be said to be income derived from land, and, accordingly, will not be exempt from income-tax.
With a view to encouraging cultivation of mushrooms, it is proposed to insert a new Section 80JJA in the Income-tax Act in order to provide that, in computing the total income of an assessee deriving profits and gains from a business of growing mushrooms under controlled conditions, one-third of such profits and gains or Rs. 10,000, whichever is higher, will be allowed as a deduction.
82. This amendment will take effect from 1st April, 1980, and will accordingly apply in relation to the assessment year 1980-81 and subsequent years.
From the above it follows that growing of mushrooms has been treated as a business and not as an agricultural activity. The very fact that the ITO has allowed depreciation at 7.5 per cent on the shed implies that he has also accepted that the assessee is carrying on a business activity. In the light of these facts, we have to reject the argument on behalf of the revenue now advanced that mushroom growing is an agricultural activity.
It remains to be seen whether the shed is to be considered as a factory building. Evidently, the assessee is growing mushrooms and selling them. This is now treated as a business activity. He trades in mushrooms which are grown in his shed. Therefore, it is to be presumed that mushrooms are the articles produced by the assessee in its shed.
The argument on behalf of the revenue that mushrooms grow because of the action of the sun and air on the plant and, thus, no manufacturing is involved, has to be rejected, for this argument closely follows the earlier argument that growing of mushrooms is an agricultural activity which has not been accepted by us. Further, the assessee employs certain equipment to control the temperature, etc. It is precisely because of growing of mushrooms under controlled conditions that the Government has accepted that mushroom growing is a business activity.
The thing or article produced by this activity is the mushroom.
Therefore, there can be no hesitation in accepting the contention of the assessee that the shed in which the mushrooms are grown is a factory building and as such a business activity of producing something as opposed to ordinary trading of existing materials is carried on.
Thus, the shed building has to be considered as a factory building. We, accordingly, allow the claim of the assessee for depreciation at 15 per cent on the shed building. The appeal is allowed.