Gross agricultural income basis governs deduction ceiling where the computation scheme does not permit a net-income reference.

The second proviso to section 5(k) of the Madras Agricultural Income-tax Act was interpreted as applying the 25% ceiling to gross agricultural income, not to income arrived at after deductions under section 5. The Act defines agricultural income broadly, while the computation scheme under section 5 first requires deductions to be worked out before net taxable income can be determined. Because the proviso operates at an earlier stage of computation, the reference to agricultural income was held to be in its wider gross sense unless the statute clearly provides otherwise. The assessees were therefore entitled to the deduction on that basis.

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Issues: Whether, for the purpose of the second proviso to section 5(k) of the Madras Agricultural Income-tax Act, the ceiling of 25% applies to the gross agricultural income or to the income computed after deductions under section 5.

Analysis: The expression "agricultural income" in section 2(a) is of wide import and covers the relevant receipts from land. Section 5 provides for computation of agricultural income by making deductions under its several clauses, including clause (k) for interest on borrowed amounts spent on the land. At the stage of applying the ceiling in the second proviso to section 5(k), the net taxable income cannot yet be ascertained because it is arrived at only after all deductions are worked out. The proviso must therefore be read as referring to agricultural income in its broader, gross sense and not to the income computed after deductions under section 5.

Conclusion: The ceiling under the second proviso to section 5(k) is to be worked out with reference to gross agricultural income, and the assessees are entitled to the deduction accordingly.

Ratio Decidendi: Where a taxing provision limits a deduction by reference to "agricultural income" but the computation scheme itself first requires all deductions to be made, the reference is to gross agricultural income unless the statute clearly indicates a narrower taxable-income basis.

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