Page 1
A GUIDE T.
Attôrney- at-law and Int
Tax Consultant an
 

O TAXKATION

Page 2


Page 3
A GUIDE TO.
TAXATION
FIFTH EDITION
2% INCOME TAX
米 TURNOVERTAX
米 IMPUTATION TA
米 CAPITAL ALLOW
冰 TAX AMNESTY
米 INCENTIVES FOF
水 STAMP DUTY
BY
P. KARALASINGHAM,`B. Sc.
Attoney-at-law and International Tax Consul consultant in Tax Administration to the Go Kitts and Ncvis, and Montserrat, Former Se of Inland Revenue, Founder and President, N of Shri Lanka.
AND
INDRAN KARALASIN
Tax Consultant and Investment Adviser, Secr Society of Shri Lanka, Managing Directo Consultant (Pvt.) Ltd.

(Including Provincial Turnover Taxes)
Χ
VANCES
R INVESTMENT
(Hons.), L.L. B.,
tant Former commonwealth
vernment of Barbados, St. :nior Asscssor Dcpartment
ational Taxpayers' Society
NGHÄM
"etary, National Taxpayers' r, Investment Promotions

Page 4
(C) AUTHORS
All rights reserved. No part of this publication may means, including photocopying and recording, with permission must also be obtained before any part o any nature.
A GUIDE TO TAXATION
First Edition - June 1986 Second Edition - May 1987
A GUIDE TO TURNOVERTAX IN SHR
First Edition - January 1987 First Sinhala Edition - 1991
A GUIDE TO TAXATION (including Turı
Third Edition - May 1989 Fourth Edition - February 1991, First Sinhal Fifth Edition - February 1994
AUTHORS : P. KARALASINGHAM and IN TITLE : A GUIDE TO TAXATION DATE : FIFTH EDITION DATE OF PUBLICATION FEBRUAR
ISBN NUMBER
Publisl NATIONAL TAXPAYERS
15, JANA
COLOM
SHRH L.

be reproduced or transmitted in any form or by any out the written permission of the authors. Written f this publication is stored in a retrieval system of
LANKA
nover Tax)
Edition - 1991
NDRAN KARALASINGHAM
Y 1994
ned by SOCIETY OF SHRI LANKA KI LANE,
1BO - 4,
ANKA . -

Page 5
ABOUT THI
Mr. Ponniah Karalasingham is a graduate in Science called to the Bar in 1971. At the age of 20 years hej Assessor and served as a Senior Assessor, when he
He has established himself as one of the foremost a practice as an Attorney-at-law and Tax Consultant
He served as a commonwealth consultantin Tax Adr and Nevis, and Montserrat in the Caribbean Comm
He has been invited as speaker to International Con as well as on Shri Lankan and Caribbean Taxation.
Conferences in Shri Lanka. He has also addressed va
in Shri Lanka.
Mr. Karalasingham has been an honorary member of (I. F. A.) in Barbados and also its branch in Shril Association and its committee on Taxes. He has alsc is a member of the Asian Law body. He has p International Fiscal Association, and to various Ta:
He has authored three other books - 'A Guide to Tu Shri Lanka' on Shri Lankan Taxation, and 'Guide to Trevor Carmichael on Barbados Taxation is to be p
A Guide to taxation and A Guide to Turnover Tax
Mr. Indran Karalasingham is an accountant by prof as a Tax Consultant and Investment Adviser. With In
Lanka and his wide contacts overseas he had succe large foreign investments. He serves as managing I Ltd. which is a BOI (Board of Investment) appro investment in Shri Lanka. He is also the secretary (

E AUTHORS
and Law, besides being a practising lawyerwird was pined the Inland Revenue Department as an Assistant
left the Department to join the legal profession.
uthoritics in the field of Shri Lankan Taxation, in his
over twenty-two years.
ministration to the Governments of Barbados, St. Kitifs
unity.
ferences in Taxation on International Taxation Issues He has also been a speaker at various Scminars and rious seminars overseason Investment Opportunities
the Amsterdam based International Fiscal Association
lanka. He is also a member of the International Bar
) addressed the Lawasia Conference several times and resented papers to various conferences namely the k and Law journals Overseas and in Shri Lanka.
nover Tax in Shri Lanka' and 'Corporate Taxation in Taxation in Barbados' which he co-authored with Dr. published shortly.
have both been translated and published in Sinhala.
ession with special interest in Taxation. He practises -depth knowledge on Investment opportunities in Shri 2ded in bringing several investors to Shri Lanka with Director of Investment Promotions Consultants (Pvt). ved company for promoting and Managing foreign of the National Taxpayers' Society of Shri Lanka.

Page 6
DEDICATED TO THE MEM AND ASSOCIATE THE LAT AMBALAVANAR WHO H. STANDING ASATAXCONS ADVISER
P. KARA

DRY OF MY GREAT FRIEND E MR. SIVASUPRAMANIAM AD AN INTERNATIONAL ULTANT AND INVESTMENT
LASINGHAM, APRIL 1994.

Page 7
OTHER WORKS E
A GUIDE TO TURNOVERT
CORPORATE TAXATION
GUIDE TO TAXATION IN BAR
DISCILA
This book is sold with the understanding that of any action taken on the basis of informatio all and any liability to any person in respect of done or omittcd to be donc by such person contents of this publication.

Y THE AUTHOR
AX IN SHRI LANKA - 1987
IN SHIRI LANKA - 1988
BADOS - TO BE PUBLISHED
AMER
the authors are not responsible for the results n in this book. The authors expressly disclaim anything and of the consequences of anything in reliance, upon the whole or any part of the

Page 8
PREFACE OF TH)
The fourth edition of this book under the title 'A 1991. That book dealt with Income Tax, Wealt
In the period from 14th January 1991 and Febr Revenue Act No. 28 of 1979 was amended by I Inland Revenue (Amendment) Act No. 63 of 19 35 of 1993. The Turnover Tax Act No. 69 of 1 43 of 1982 also was amended. Further several G Act and the Stamp Duty Act.
This book incorporates all the amendments mentic to the Inland Revenue Act incorporating the Bu be released shortly. The release of this book can that the book cannot incorporate the amendment 95. However a chapter is written giving the budg when the amendment is passed by Parliament.
We hope this edition will fulfil the need of the currently in force in Sri Lanka. The law stated
15, Janaki Lane, Colombo 4.
28th February 1994.

E FIFTH EDITION
Guide to Taxation' was released on 14th January h Tax, Turnover Tax and Stamp Duty.
lary 1994 Wealth Tax was abolished. The Inland land Revenue (Amendment) Act No. 49 of 1991, D2 and the Inland Revenue (Amendment) Act No. D81 also was amended. The Stamp Duty Act No. azette Orders were issued under the Turnover Tax
oned in the last paragraph. There is one amendment idget Proposals announced in November 1993 to not be delayed any longer and hence it is regretted which will apply for the year of assessment 1994/ get proposals. The authors may issue a supplement
taxpayer to update his knowledge of all the taxes in this book is as at 28th February 1994.
P. Karalasinglham Indran Karalasingham

Page 9
Chapter 1 Chapter 2 Chapter3 Chapter 4 Chapter 5 Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10 Chapter ll Chapter l2 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Chapter 22 Chapter 23 Chapter 24 Chapter 25 Chapter 26 Chapter 27 Chapter 28 Chạpter 29 Chapter 30 Chapter 31 Chaptcr 32 Chapter 33 Chapter 34 Chapter 35 Chapter 36 Chapter 37
CONT
PAR
INCOM
Introduction Liability to Income Tax Sources of Profits and Inc Profits from Employment Capital Gains Ascertainment of Profits
Expenditure
Capital Allowances Ascertainment of Statuto Ascertainment of Assessa Ascertainment of Taxable Companies Imputation System of CoI Partnership Charitable Institutions Clubs and Trade Associat Units Trusts & Mutual Fu Receivers, Trustees and E Exemptions Tax Holidays under Act N Tax Holidays Granted un Reliefs for Persons Engag Withholding Taxes Powers of Search Tax Planning, Tax Avoida Unilateral Relief from Do Sri Lanka's Double Tax T Returns & Information Assessments & Appeals Recovery of Tax Penalties & Offences Payment of Tax by Emplo Repayment Taxation of Professionals Rates of Tax Tax changes for 94/95 Tax Amnesty
Surcharge

CNTS
T 1
ETAX
OIC
und Income - Deductible and Non-Deductible
y Income ble Income : Income
mpany Taxation
ions nds
XecutOrS
No. 42 of 1990 der Act No. 63 ed in Exports
ince & Tax Evasion Luble Taxation reaties
yees under PAYE Scheme

Page 10
Chapter 1 Chapter 2 Chapter3 Chaptcr 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter ll Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter l (5 Chapter 17 Chapter 18 Chapter 19
Chapter 1 Chapter 2 Chapter3
CONT
PAR
TURNOV
Introduction Legislation Imposition of Turnovc Turnover Tax Payable What is Turnover? Excmption & Excepte Manufacturers Turnover Tax - Expor Turnover Tax - Contra Turnover Tax on the E Turnover Tax - Specia Crcdits & Refunds Returns & Informatior Payment of Tax Assessments
Appeals Clarifications on Turn Summary of Cases Rates of Turnover Tax
PA
Stamp Duty Defence Levy Foreign Exchange An

ENTS
Τ2
ER TAX
rTax to Provincial Councils
Articles
CS
CtOS
susiness of Printing l Cases
over Tax
ART 3
hnesty

Page 11
1.
CHAPT
INTRODU
History
Income Tax was introduced in Sri Lanka in 1932 1st 1932. At that time income tax was introd requirements of the colonial government. Sri Lal the policy objectives and revenue requirements Lanka's tax system has undergone several char Taxation Commissions in 1953, 1966 & 1991. I1 Sri Lanka to suggest reforms to the tax system introduced effective from 1959. These taxes b Expenditure Tax was abolishcd very early. Gist abolished in 1991.
The Income Tax Ordinance was replaced by Inla Act No. 4 of 1963 was replaced by the Inland R
Current Legislation
The law applicable to Income Tax from the year No. 28 of 1979. This Act has been amended from
(i) Inland Revenue Amendment Act No. (ii) Inland Revenue Amendment Act No. 4
(iii) Inland Revenue Amendment Act No. 2
(iv) Inland Revenue Amendment Act No. 4
(v) Inland Revenue Amendment Act No.
(vi) Inland Revenue Amendment Act No.
h (vii) Inland Revenue Amendment Act No.
(viii) Inland Revenue Amendment Act No. 2
(ix) Inland Revenue Amendment Act No.
(x) Inland Revenue Amendment Act No.
(xi) Inland Revenue Amendment Act No.

ER 1
OTION
by Ordinance No. 2 of 1932 effective from April uced in Sri Lanka in order to meet the revenue kagained independence in 1948 and from that time of the government have changed. Further, Sri ges. The tax system has been reviews by three between in 1985 Professor Kaldor was invited to and on his suggestion three new taxes were also ing Wealth Tax, Gift Tax and Expenditure Tax. Tax was abolished in 1985 and Wealth Tax was
nd Revenue Act No. 4 of 1963. The Inland Revenue cvenue Act No. 28 of 1979. -
of assessment 1979/80 is the Inland Revenue Act n 1979 to 1993 by the following Amending Acts:-
24 of 1980.
0 of 1981.
!7 of 1982.
3 of 1983.
4 of 1984.
6 of 1985.
6 of 1985.
7 of 1986.
of 1987.
of 1988.
of 1988.

Page 12
(xii) Inland Revenue Amendment Act N
(xiii) Inland Revenue Amendment Act N
(xiv) Inland Revenue Amendment Act N
(xv) Inland Revenue Amendment Act N
(xvi) Inland Revenue Amendment Act N
(xvii) Inland Revenue Amendment Act N
The Inland Revenue Department has published acc Revenue Act No. 28 of 1979 upto 31st Decembe mentioned above from (i) to (xi). Readers are requ amendments from 1989 to 1993.

Wo. 11 of 1989.
No. 22 of 1990.
Wo. 42 of 1990
vo. 49 of 1991.
no. 63 of 1992.
No. 35 of 993.
Dnsolidated Act incorporating amendments to the Inland r 1988. (This consolidated Act includes amendments |ested to purchase the consolidated Act and incorporate

Page 13
4.
CHAPT
LIABILITY TO
Basis of Liability
Income Tax is charged for every year of assess person for that year of assessment. “Person is
al An individual
b A Company
c Body of pcrsons, and |d]] Any Government
A resident person is liable to tax in Sri Lanka income arising outside Sri Lanka. A non-reside person's income arising in Sri Lanka.
Year of Assessment
An year ofassessmentis the pcriod of twelve moi of the following year.
Example: The year of assessment 1991/92 cc
ending on the 31st March 1992.
Income"Period
The profits and income that are taxed in anyear of asscssment. Beginning from the year of asses year basis.
Example - The profits and income arising durin be taxable for the year of assessme
Resident and Non-Resident Person
4(1) Individual
Section 67(1), (2), (3), (4), (5), (6), & (7) of thc by Amendment Act No.8 of l988 deals with thc status of an individual for income tax purposes.
Rule 1 - An individual who is physically preser
or more during any tax year shall be tax year.

ER 2
NCOME TAX
sment in respect of the profits and income of every
defined to include the following:
on that person's income, arising, in Sri Lanka and 2nt person is liable to tax in Sri Lanka only on that
nths from the lst of April of an year to the 31st March
vers the period beginning from 1st April 1991 and
of assessment are the profits and income of that year sment l979/80 income tax is charged on the current
g the period 1st April 1991 to 31st March 1992 will In 1991/92.
: Inland Revenue Act No. 28 of 1979 (as amended mcthod of determining the resident or non-resident These may be stated as rules and are as follows:
it in Sri Lanka for one hundred and cighty three days decimed to be residcnt in SriLanka through out that

Page 14
Rule 2 -
Rule 3 -
Rule 4 -
Rule 5 -
Rule 6 -
An individual who has been deemcd be deemed to be resident until such t an unbroken period of three hundrcc he shall, notwithstanding Rule 1 bed the tax year in which such absence c
Where, but for his presence in Sri I the 0aggregate thirty days, a person v not exceeding thirty days shall be tri
Example - Perera leaves Sri Lanka 31.12.1991. He returnst is in Sri Lanka till 15.5.l by the application of Ru resident status becauseh days. But by application which is less than 30 d. 3, Perera is a non-reside
An individual who is employed by the other country for the purpose of the income tax or anytax of a similar cha official cmoluments payable to him f is also treated as residcnt where that country other than Sri Lanka, such in a resident on income other than his o
An individual who is employed in a C Shipping Act No. 197l) shall be treat the period he/she is so employed.
An individual who is not a citizen of treated as a non-resident for a period employment in Sri Lanka.
(2) Companies and Bodies of Persons
Section 67 (1) of the Inland Revenu determining the status of a company is deemed to be a resident in Sri Lan
(a) where the company's (or body of
O
(b) where the control and managem

resident for two or more consecutive tax years, shall me as he is continuously absent from Sri Lanka for and sixty five days. When such person is so absent 2emed to be nonresident from the commencement fro O111C1CCS.
anka for any period or periods not exceeding in ould have becn non-resident, such period or periods ated as if he had spent them outside Sri Lanka.
for the first time to take up employment abroad on Sri Lanka on 1.5.92 to attend his fathers’ funcral and 992. He goes abroad and returns only on 15.2.1993. le 2 mentioned above Perera cannot claimn o n -
e has not been continuously out of Sri Lanka for 365 of Rule 3 has been in Sri Lanka only for 15 days, ays stipulated. Therefore, by applying Rule 2 and nt for Sri Lanka tax purposes. -
: Government of Sri Lanka and who is resident in any employment is treated as a resident of Sri Lanka if racteris not payable in that country in respect of the or such period. Further, the spouse of the individual individual happens to be a citizcn or subject of any dividual will not be liable to Sri Lanka income tax as fficial cmoluments or other income from Sri Lanka.
cylon Ship (which term is defined in the Merchant
ed as a resident in Sri Lanka for tax purposes during
Sri Lanka and also is cmployed in Sri Lanka shall be of three (3) years from the date he or she commences
Ie Act No. 28 of 1979 deals with the basis of of body of persons. A company or body or persons ka in the following circumstances.
persons) registered or principal office is in SriLanka,
ent of its business is exercised in Sri Lanka.

Page 15
In a case where a company has its registered or princi of a company docs not present any problem. Th incorporated outside Sri Lanka and carry on business and management exercised. In Sri Lankathere is noj Law is based on the U.K. law the Courts in Sri Lanka the fiscal residence of a company.
In the two earliest cases on the topic, Cesena Sulphu Jute Mills v. Nicholson (1876) ITC 83, the Court co was. In both cases, the companies operated in forcig It was held that, as the foreign operations were carried the centre of control, and hence residence was in El
The House of Lords in De Beers Consolidated N company incorporated and operating in South Afric mct in London. After emphasizing that it was a pure
actually resided, the House of Lords held that thcco for that finding was the presence of the majority of Company’s affairs. The authoritics indicate that the p decisive factor, although it will usually be an imp management and control. The place of central mana determined upon analysis of all relevant circumstan
In the later case of Unit Construction Co. Ltd. V. Bullo of central management and control was other than the of Lords considercd the place of residence of certa dcductcd by an English member of the same group as that fact that articles required meetings of the boards ( finding that central management and control was exe thereupon accepted the findings of the Special Comi and management was exercised by the board of the p the proposition that residence is determined by de fa
The U.K. Revenue Authorities issued a Statement of F confirmcd the continucd application of U.K. case law where central management and control is to be founc Company. It is to be distinguished from the place who Thc Statement of Practice also gives guidelines on th tcst in situations where the parcnt company and the su advicc given or influence exerted by the parcnt, for ex of the subsidiary and initiate or approvic alterations t subsidiary bcing deemed to be residcnt in the country exercised by thc directors of the subsidiary, thcir ind making on matters such as investment, production direction by the parent are also factors to be conside centrally managed and controlled in the parents col

pal office in Sri Lanka, the determination of the status 2 difficulty arises in cases where the company is in Sri Lanka. In this case, the testis where is the control Idicial pronouncement of this phrase. Since Sri Lanka would tend to follow the U.K. tax cases in determining
ir Co. v. Nicholson (1876) 1 Ex. D.428 and Calcutta insidered where the centre of control of a business in countries but had their board meeting in England. out merely by agents appointed by the English boards, gland.
lines Ltd. V. Howe (1906) A.C. 455 considered a a of which the board majority resided and normally question of fact as to where management and control mpany was resident in England. The primary reason the board there, the board cxercising control of the lace of meeting of the directors is not necessarily the ortant factor within the test of thc place of central gement and control remains a question of fact to be CCS.
ck (1959) 3A.E.R. 83 l (H.L.) its was held that place
place where the directors met. In this case, the House in subsidiary companies of which losses had been ter subvention payments had been made. It was held )nly outside thc United kingdom did not preclude the rcised In London. Having so found. Their Lordships missioncrs of Taxation that, on the facts, real control arent company in London. This case is authority for |cto and not de jure control.
'ractice in July 1983 on “Company Residence” which '. A company is regarded as resident for tax purposes | at the highest level of control of the business of the re the main operations of a business are to be found. capplication of the central management and control bsidiary operate in different countries. In such cases, ample, to appoint and dismiss members on the board the financial structure will not in itself result in the of residence of the parent. The degree of autonomy ividual residcnce status and the frccdom of decision
marketing and procurement without reference of -red in determining whether or not the subsidiary is Intry of residence.

Page 16
The Revenue Authorities in the U.K. have made it depend on the precise facts and the existence of genu objective is the obtaining of tax benefits from resider in considerable detail to determine whether the cer merely a creative facade without reality or substance not directly applicable in Sri Lanka. These may act resident or non-resident status of a foreign compan
2.
Dual Residence
There has been judicial suggestion that com management and control and hence, residence. Railway Co. Ltd. v. Thomson (1925) 9 T.C. 3. and the United Kingdom due to the even bala respectively.
However, subsequent decisions reveal consid bascd on the splitting of management and co Commissioner of Taxation (1940) A.T.E. 42, (1953)34 T.C. 207 Lord Radcliffe in the casc A.E.R. 831 indicated that certain cases may wi central management and control can be cstat finding of a number of residences or, alternativ "sufficient degree' of management and contro
In conclusion, it may be stated that a finding of facts indicate divided central management and ( with reluctance.

clear that the interpretation of the case law test must ine commercial reasons. Where it appears that a major ce or non-residence, the authorities examinc the facts tral management and control in a particular place is ... These guidelines are for the U.K. Tax Inspectors and as guides when a question as to the determination of y operating in Sri Lanka arises.
panies may have dual, divided or even peripatetic For example, the House of Lords in Swedish Central 42 held that a company was resident in both Sweden nce of factors pointing to Swedish & U.K. residence
rable reluctance to adopt a finding of dual residence ntrol - Koitaki Para Rubber Estates Ltd. v. Federal and Union Corporation Ltd. v. I.R. Commissioners of Unit Construction Co. Ltd. v. Bullock (1959) 3 ell creatic problems if, on the facts, no single place of blished. His Lordship suggested that there may be a cly a compromise decision bascdon some unspecified ol.
dual residence of a company may be necessary if the :ontrol. However, such a conclusion would bc reached

Page 17
1.
1.
2.1
2.2.
CHAPT)
SOURCES OF PRO
Sources of Income:
The Inland Revenue Act No. 28 of 1979 in Sec income. These are:-
(l) Trade, Business, Professio (2) Employment
(3) Income from houses, prop (4) Dividends, Interest and Di. (5) Charges and Annuitics
(6) Rents, Royalties and Prem (7) Capital Gains
(8) Income from any other sou
nature.)
Profits from Trade or Business
Trade:
The Act in Section 163 defines trade as follo “Trade includes every trade and manufacture trade. It will be observed that the definition above is 1 word includes. Hence, in order to obtain interpretation of the word.
In Smith Barry V. Cordy (28T.C. 250 at p.285) nature of a commercial undertaking, of which bu On of the more comprehensive judicial pron Trade refers to the various activities of comm or multiplying the products of the earth and se. the purchase and sale of commodities, or the o and the like. (Lord Atkins in Fry V. Burma very much a question of fact, whilst it is true th means under the Inland Revenue Act is a ques
Business:
The term “business” is not exhaustively defin includes the following :-

TER 3
FITS AND INCOME
:tion 3 enumerates the various sources of profits and
n and Vocation.
erties and buildings.
SCOuntS.
iums
rce (excluding income of a casual and non-recurring
DWS :-
and every adventure and concern in the nature of
not exhaustive but inclusive in view of the use of the the meaning one has to resort to the judicial
Scott L.J. said that “trade involves something in the lying and selling are the mostobvious characteristics.” ouncements on the words trade was that:- herce - the winning and using of products of the earth, lling them, or manufacturing them and selling them, ffering of services for a reward, such as conveyance Corporation Ltd., - 15 T.C. l 13). What istrade is
hat what is a trade is a question of fact, what trade stion of law. (Edwards V. Bairstow & Harrison).
ed in the Act but the definition in Section 163

Page 18
2.3
(i) Agricultural undertaking (ii) Racing of Horses (iii) Letting of premises for commercial
Therefore, in order to obtain the meaning of The word business connotes some real, s of activity or conduct with a set purpose.” (Na
Business is not a unilateral act. It is brought persons. Thus where an activity is in the natu on between two persons, then each is carrying this as a corollary that a man cannot do busine
Adventure in the nature of trade.
Trade is defined in the Act to include an adv inplies that the adventure has the characterist all the characteristics, it will be a trade. T adventure.
Profession :
The Inland Revenue Act is silent on the defini
derived from Case Law. In I.R.C.V. Marxse
%
« X «Y «Y «O O AO O O O O O a profession in the present use of
requiring either purely intellectual skill, or
surgery, skill controlled by the intellectual s occupation which is substantially thc producti sale of commodities. The line of demarcation used to be confined to the learned profession - a wider meaning. One indicator as to whethel he belongs to a professional organisation but activities not with in the scope of the Orga
A company cannot carry on a profession (Espl 2.K.B. 731).
The following cases will help in deciding the (
A company carrying on business as profession because a company cannot
bring it within the exemption. (CIR
2. An ophthalmic optician was held not t
(1942) 2 A.E.R. 517).

purposes by a company.
f the term “business’ one has to look at dictionaries. ubstantive and systematic or organized course
rain Swadeshi V. CEPT26 ITR 765 at 773 (SC)).
about by a transaction between two or more re of a business activity and that activity is carried on a business with the other. It can be inferred from 'ss himself.
enture of concern in the nature of trade. This ics of trade but not all of them. If it did have his appears to be the distinguishing mark of an
tion of profession but some assistance may be
(12 T.C. 41) Scrutton L.J. said:
language involvcs the idea of an occupation if any manual skill, as in painting and sculpture, or kill of the operator, as distinguished from an on, or sale, or arrangcments for the production or may vary from time to time. The world profession the Church, Medicine and Law. It has now, I think, r a person is carrying on a profession is the fact that this factor is not decisive as he may be engaged on nisation (Hume v I.R.C. 12 TC 245).
len Williams Son & Savainston Ltd. v I.R.C. (1919
Juestion whether a profession is being carried on :-
s auctioneers was held not to be carrying on a
have the professional qualifications necessary to
v Peter Mc. Intyre Ltd. 12 TC 1006).
o be carrying on a profession. (Webster v C.I.R.

Page 19
5.1
5.2
3. ln a later case of an optician, a sinc carrying on a profession was uphe (Carr v C.I.R. (1944) 2 A.E.R. 163).
4. The lcadcrand conductor of a well-kn a profession. (Loss v C.I.R. (1945) 2A
Vocation:
Likc the word “profession there is no definiti Act. The dictionary meaning of the word inclu Judicially, it has been notcd that the word is of vic passes his life. (Partridge V. Mallandaine 2 T.C A typical example of a person following a voc, full-timc employee of an organisation wrote a p produced on stage and then bought for a fil as an advance on royalties. It was held that t
(Billam v Griffith 23 T.C. 757)
Dividends, Interest & Discounts.
Dividends:
A dividend is a distribution of profits by a com
(a) money or an order to pay money, or (b) sharcs in any other company, or (c) debentures in that company or in any o
lfa company distributcs to its shareholde
(eg. bonus shares) and within six years of thc any capital by way of reduction of capital suchre
The amount so treated as a dividend shall not
A dividend will not include -
(i) a bonus share, or (ii) a payment in rcduction of capital made
Interest:
The tcrm intcrest is not defined in thc Act. Accord allowed by law or fixed by the partics for the use Tax Agrecmcnts concludcd by Sri Lanka, a dcs
9

ng by Commissioners that the taxpayer was d as onc of fact for which there was evidence
wn dance band was held not to bc carrying on .E.R. 683).
in of the word 'vocation in the Inland Revenue lcs the occupation or calling that onc follows. ry wide ambit and means thc way in which a person
179 at 18()). tion is that of an author. A barrister who was a lay during his spare time which was subscqucintly m, in rcspcct of which hcrcceived a lump sum he sum was assessable as arising from a vocation.
pany to its shareholders in the form of -
ther company. rs any sharcs in the company by capitalising profits
date of such distribution, returns or distributcs turn or distribution will be trcatcd as a dividcnd. xcced the profits capitaliscd carlicr.
in circumstances other than those stated above.
(sec section 163)
ing to the dictionary,"interest" is the compensation r forbearance or dctention of money. In thc Double nition is as follows:-

Page 20
5.3
6.
6.)
6.2
"The tcrm "intcrest" as used in this A whether or not secured by mortgage: debtor's profits, and in particular inc bonds or dcbentures, including prem bonds or dcbentures. Penalty charges the purpose of this Article.
Discounts.
Thc term 'discount is not defined in the Inl The dictionary gives the following definition
"An abatement or deduction from th anything, and as used in commerce ( ratic percent) made for payment befor from thc amount of a bill or cxchang before it is due. Murrays Oxford E
Discount will arise in practice where also arise where bills are discountec
Income from Property.
Net Annual Value.
The inct annual value of any house owned an his income. There is, however, exemption owned and occupied by or on behalf of an
Rents.
Thc incomc from renting of propcritics is l of computing the rent is specifically provic
Rents, Royalties and Premiums.
Rents :
lincome from rent is a sourcc of income. Ren The basis of computing thc income from lan Act. There is no specific provision in the A rent of property other than from land an
from renting property (other than from la will bc taxable.

rticle means incomc from debt - claims of cvery kind, und whether or not carrying a right to participatic in the ome from Government sccuritics and income from iums and prizes and prizcs attaching to such securities, for late payment shall; not be regarded as interest for
and Revenue Act.
2 amount or from thc gross reckoning or value of i) is desincd to mean a deduction (usually at a certain e it is due of a bill or account. (ii) the deduction made ge or promissory notc by one who gives value for it English Dictionary.
wholesale traders grant discount to retailers. Discounts i by banks and other financial institutions.
ld occupied by or on behalf or a person is treated as
granted fromincome tax of one place of residence individual.
iable to tax under the he head “rento. The method led and will be dealt with in a later chapter.
t can arise for use or occupation of property. d and improvements as provided in Section 6 of the ct with respect to the computation of income from d improvements. Where a pcrson reccives income nd and improvements) thc total amount received
()

Page 21
7.2 Royalties:
7.2.1 The term royalty is not defined in the Inland the meaning given to this term in dictional the following definition :-
“Compensation for the use of pro property u expressed as a percentage of receipts fro1 produced. A payment which is made to an auth holder in respect of each copy of his work whic sold under the patcnt. Royalty is share of produ to use the property, In its broadest aspect, it another the usc of property.
The term is however defined in the Double Ta countries. Thc definition given in thc Switzer
The term "royalties as used in this Article mc for the usc of, or thc right to use, any copyrig cinematograph silms and films or tapes for te design or model, plan, secret formula or pro pro
commcrcial of scientific cquipmcnt or for : scientific expericnice.
Dcfinition similar to the above are contained in Lanka.
7.2. 2 Taxation of Royalties :
Scction 80B of the Inland Revenue Act decms Lanka the following type of royaltics :-
(a) Royalties borne directly or indirectly b
Lanka, or,
(b) Royaltics which arc deductible unders
The rate of tax on royalties which fall under this cate 1993/94 and subscquicnt years. With regard to they is 33 1/3%. This is however reduced in respect of ro Lanka has concluded Double Tax Agreement. (Sectic Act 35 of 1993.)

Revenue Act. Therefore we have to give the term ies. Blacks Law Dictionary (5th Edition) gives
sually copyrighted matcrial or natural resources n using thc property or as an account per unit bror composer by an assignce, licensec or copyright his sold, or to an invcntor in respcct of each article ctor profit rescrved by owner for pcrmitting another is sharc of profit rescrved by owner for permitting
x Agreements concluded by Sri Lanka with other and agreciment is given below:-
ans payments of any kind received as a consideration nt of literary, artistic orscientific work including :levision or broadcasting, any patent, trade mark, cess, or for the use of, or the right to use, industrial, information concerning industrial, commercial or
the other Double Tax Agreements concluded by Sri
as profits and income arising in or derived from Sri
y a person (company or individual) resident in Sri
:ection 29 of the Act.
gory istaxable at liš% from the year of assessment cars of assessment 1992/93 and prior years the rate alties paid to residents of a countrywith which Sri n32CC introduccdby Inland Revenue Amendment

Page 22
CHA
PROFITS FROM
3.1 Profits from employment
Section 4(1) of the Act states what profits fri
(a)(i) any wages, salary, allowance, lea
pcrquisite or such other payment in
his employmcnt,
(ii) thc value of any bencfit to the emplo of any holiday warrant or passage,
(iii) any payment to any other person for parcnt; whether received from the e
(b) thc valuc of any conveyance grantcl or any sums so granted for the purc
(c) certain lump sum paymcnts, which Act. (This will be dealt with later.)
(d) Rental Value of any place of resident of residence is provided by an empl thc rental value over such rent. (Th amount assessable under this head :
3.2 Value of any benefits.
Scction 4(1)(a)(ii) states that the “value of any 4(2) of the Actscts out the method of computir
is as follows:-
(i) Whcre the market value of the ben
which is assessable;
(ii) Where the market value cannot be
any individual to obtain such benef
authority to specify thc value of an
3.3 Rcntal value of a residence

TER 4
EMPLOYMENT
»m employment are liablc to tax and these are
ve pay, fee, pension, commission, bonus, gratuity, money which an employce receives in the course of
fee or to his spousc, child or parent including the value
the benefit of the employce or of his spouse, child or mployer or others.
d free of any charge by an employer to any employee, hase of any conveyance.
are taxed on the basis set out in Section 32(2) of the
ce providcd rent-free by the cmployer or where a place oycrat a rent less than thc rental value, the cxcess of Act has provided in Scction 4(1)(d) a ceiling on the and this will be dealt with later).
benefit is treated as a profit from employment. Section g the value of the bencfit derived by an individual and
efit can be ascertained, then it is the market value
scertaincd, the cost that would have to bc incurred by it. The Commissioner-General of Inland Revenue has y bcncsit by order published in the Gazette.

Page 23
(l)
(2)
(3)
(4)
(5)
Profits from employment include
(a) the rental value of a residence pro
(b) where a residence is provided by t excessof thc rental value ovcr suc
Rental value of a residence is either
(i) its net annual value increased by
(a) the rates paid by thc owner, a (b) 33 1/3% of such N.A. W. on ac (it is thus cqual to thc rating a
Or
(ii) the gross rent paid to the owner fo
whichever is highcr.
Rental value of a residence situated in
(a) 25% of the profits described in pal
O
(b) Rs.. 48,000
Rental value of a residence situated in
(a) 10% of the profits described in para
O
(b) Rs. 6,000
Rental value of estate bungalows
Rental value of estate bungalows is lim (a) 7 l/2% of the profits described in
O
(b) Rs.. 4,000
Where the residence provided by the employer account. A sum equal to 2 l/2% of the gross rem of Rs.9,000 for a year, is taken as the value of employer.
13

vided rent-frce by the employer, or
he employer at rent less than the rental value, the ch rent.
d - count of repairs and other expenscs
isscssment increased by the rates for the year).
r such place of residence,
rated arca is limited to lower of
ras l(l) (a) and l(I) (b),
unrated area is limitcd to the lower of
s l(l)- (a) and l (1)(b),
ited to the lower of
para l(l) (a) and 1(1) (b)
is furnished that benefit too has to be taken into uncration of an employce, subject to a maximum the bcncfits in this respect, provided free by the

Page 24
3.4 Special cases
(l) Insurance agents, sales representative The following are not treated as profits
(a) large commissions reccived by in
receipt of small salaries, (b) the gross remuneration of sub-po
(c) the gross remuneration of guaran
(2) Government employees resident abroa
(a) An employce of thc Governmc employment and his spouse arc emoluments are not liable to ta:
(b) Where such employcc is a citiz is not by reason of his being so any income othcr than his offic from Sri Lanka.
(3) Employees in a Sri Lanka Ship
(a) An employee in a Sri a Sri La
(b) Where such cmployee is a cit he is not, by reason of his being on any income other than his
(4) Expatriates employed in Sri Lanka
(a) A non-citizen who is emplo
pcriod of thrcc years from t Lanka. Such an individual
(i) 25% up to the year o (ii) 15% from the year o
(b) After thc expiry of the three at thc normal rates.
(c) Where the assessable incor resident consists solely of ci

s, sub-postmasters and guarantee Shroffs
from employment:
Surance agents and sales representatives who are in
stmasters
tce shroffs.
'd
nt who is resident abroad for the purposcs of his decmcd to be resident is Sri Lanka, if his official k in the other country. -
ten or subject of any country other than Sri Lanka, he deemed to be a resident, liable to tax as a residcnt on ial emoluments or other income arising in orderived
(scction 67(5))
nka ship is deemed to be resident in Sri Lanka.
izen or subject of any country other than Sri Lanka,
so dccimed to bc a resident, liable to tax as a resident emoluments arising from such employment.
(section 67 (6))
yed in Sri Lanka is deemed to be non-resident for a hc datc of commcncement of his employment in Sri is taxed at a special ratic of
fassessment 1992/93,
fassessment 1993/94
(section 67 (7))
ycarpcriod he is regarded as a resident and is taxed
ne of a non-citizen employee decimed to be a nonmployment income not exceeding
4

Page 25
(i) Rs. 27.000 for any Y/A (ii) Rs. 42,000 sor any Y/A
(5) Liability of non-residents from employ
Section 2 charges a non-resident pers dcrived from, Sri Lanka. The expressic Lanka covers profits and income deriv narrows the general scope of section 2 services or past services rendercd in
It follows that
(a) salary payable by a resident person to as it for services rendered in Sri Lank
(b) pension payable by a residcnt person
it is for past services rendercd in Sri L
(c) leave pay payable by a resident person as it is for past scrvices rendcrcd in Sr
(d) a non-resident individual who is emplo
on his emoluments as his services are
Examples:
(i) A lecturer at a private College who is on: is liable to tax on his emoluments.
(ii) An employee of a local firm, attached t resident is not liable to tax on his cmoll
(iii) An employee of a local firm serving a pc to be a resident is not liable to tax on hi
(Note that the emoluments in (i) are in respec in (ii) and (iii) those are in respect of service
3.5 Exemptions
(l) The President
The emoluments, pension and any othe President of Sri Lanka are excmpt sron

up to and including 1991/92 from 1992/93 such income is exempt from tax
(section 73(1A))
ment by a resident person
on to tax on his profits and income arising in, or nprofits and income arising in orderived from Sri ed from services rendered in Sri Lanka. Section 72 as regards employment to the profits arising from Sri Lanka.
(section 72)
a nonresident individual is liable to tax in so far
a.
o a nonresident individual as liable to tax in so far anka;
to a nonresident individual is liable to tax in so far i Lanka,
yed abroad by a resident person is not liable to tax not rendered in Sri Lanka.
sabbatical leave and who has ceased to be arcsident
o its branch in Singapore, who has ceased to be a lmentS.
riod of apprenticeship abroad and who has ceased semoluments.
t of past services rendered in Sri Lanka, whereas, 2s rendcred outside the country).
bencfit arising to a person from the office of the
taX.
(section 9(1)(a))

Page 26
(2)
(A)
(B)
Government employees
Year of assessment 1992/93 and prio
(a)
(b)
(c)
(d)
(e)
(f)
(h)
(i)
()
(k)
(l)
any person who holds a paid of include any government employ
a judicial officer,
an cmployee of a local authority
an employee of any Provincial
an employee of a public corpora
and employcc of any business un under thc Business Undertakings
a member oremployee ofany bo any law, all members of which a
an employce of a regional rural
anemployee of the Institute of Po of Policy Studies of Sri Lanka A
the Governor for a province app
any member of any Provincial C
Pensions and retircmcnt benefit rcfcrrcd to in items ofan employ( and after its acquisition by the G relating to his period of service a
Year of assessment 1993/94 and subsc or any profits from employment paid
(i)
(ii)
(iii)
(iv)
any individual out of the Consol
any employce of any public corp cmoluments or such pension or su of the sums voted annually by Pa Fund;
the Governor for any Province a
any member of any Provincial C
16

years from tax:
ice under the Republic (such person would ee or a member of Parliament)
Council or an officer of a Public Service;
tion;
dertaking acquired by or vested in the Government
(Acquisition) Act, No. 35 of 1971,
ard or commission if inquiry established by or under ire appointed by the President or by a Minister.
development bank.
licy Studies of Sri Lanka, established by thc Institute Act No. 53 of 1988.
ointed under Article 154B of the Constitution.
ouncil.
s (see para l (l)(c)) relating to the employments c who has served in an undertaking both before ovcrnment, only that part of the retiremcnt benefits after acquisition will quality for the exemption.
quent years. The official emoluments, any pension to
idated Fund,
oration being a public corporation which pays such
uch profits from employments wholly, or partly out rliament to such corporation from the Consolidated
ppointcd under Article 154 B of the Constitution;
ouncil;

Page 27
(v) any employee of Provincial Col
(vi) any member of a local authorit.
(vii) any employee of a local author
(viii) an employee of a University wh Universities Act. No. 6 of 197
(ix) al employee of the Institute of P. of Policy Studics of Sri Lanka .
Any pension and profits from employmcnt received by such individual or by any otherindividual as an emp corporation referred to in such-para (ii) abovc are a
Where the income tax in respect of the official emol part of the profits from employment of such employee able by such corporation are decimed not to form pa
Furthcr, no deduction will be made in respect of any by such cmployce to any approved provident fund o
(3)
Non-citizcins who have entered into contracts o in, Sri Lanka, on or after 15.ll. 1979 are not er
Note: judicial officer includes a judge of the Suprem of any other court of first instance, tribunal administration of justicc or for the adjudication a pcrson who performs arbitral functions. Public corporation means any corporation, boa under any written law other than the Companic wholly or partly provided by the Government means any Municipal Council, Urban Council, Authority established by or under any law to c functions corresponding or similar to the pow discharged by any such council.
Non-citizens cmploycd in B.O.I. enterprises:
The emoluments arising in Sri Lanka, and incol is a scientist, technician, expert or adviser and
undcrtaking which has entercd into an agrecm exempt from tax.
17

ncil or any officer of any Provincial Public Service;
ty;
ich is established or deemed to be established by the 8;
)licy Studies of Sri Lanka established by the Institute Act, No 53 of 1988. are cxempt from tax.
by an individual respcct of past services performed }loyee of any public corporation other than any public so exempt from tax.
uments corporation, such tax is deemed not to form }, and such emoluments in respect of which tax is pay rt of the statutory income of such employee.
qualifying payment comprising contributions made r pension fund.
femployment or who are brought to, and employed titled to these exemptions.
(sections 9(1)(b),9(2))
he Court, Court of Appeal, High Court or a judge or institution created and established for the of any labour or other dispute but docs not include
rd or other body which was or is established by, is Ordinance or the Companies Act with capital py way of grant, loan or otherwisc Local Authority Town Council or Village Council and includes any xercise, perform and discharge powers, duties and ers, duties and functions exercised, performed and
ne not arising in Sri Lanka, of a non-citizen who who is brought to and employed in Sri Lanka by an ent with the B.O.I. under section 7 of that law are

Page 28
(4)
(5)
The exemption will cease on the date of his c date on which the exemption from tax of that
Diplomatic Representatives and their staff
The official emoluments arising in Sri Lanka, a of the following are exempt from tax:
(a) the Diplomatic Representative in S.
foreign Government,
(b) any Consul or Trade Commissioner
(c) any members of the staff of the Di Commissioner who is a citizen or s Representative. Consul or Trade C
Such an individual is liable to tax on any other resident. A person referred to in item (b) or (c
(i) the Minister, on being satisfied that Lanka resident in that foreign coun country, declares that the exemptio
(ii) that person does not carry on or exei
business, profession or vocation.
Officials, experts and trainees of the U.N.(
international organizations
The official emoluments arising in Sri Lanka, a of the following are exempt from tax:
(a) any official of the U.N.O. who is no
(b) any expect, adviser, technician or
payable by the Government of Sri Government through
(i) any Specialised Agency of the (ii) the Pint Four Assistance Progr (iii) the Colombo Plan Organizatio (iv) the Asia Foundation; or
(v) a similar organization approve

assation of employment in that undertaking or on the undertaking ends, whichever is the earlier.
(section 9(1)(c)(iii)
nd any income notarisingin orderived from Sri Lanka,
i Lanka (by whatever name or title designated) of a
who is a citizen or subject of the country he represents.
plomatic Representative or of such Consul or Trade ubject of the country represented by that Diplomatic
ommissioner.
income arising in or derived from Sri Lanka as a non ) qualifies for the exemption only if
a corresponding official of the Government of Sri try is or would be granted similar exemption by that n shall apply in that case,
cise in Sri Lanka any other employment or any trade,
(section 9(1)(f) (i-ii)
D., its specialised agencies and other foreign and
nd any income notarisingin orderived from Sri Lanka,
pt a citizen of Sri Lanka;
official whose salary or principal emolument is not Lanka and who is brought to Sri Lanka by the
; U.N.O.
amme of the U.S.A., n (including its Technical Assistance Bureau),
d by the Minister;
8

Page 29
(6)
(7)
The following organisations have been appro organizations.
Canadian Executive Service Over International Development Resear International Executive Service C
British Executive Service Oversea
2
3
4
5. Danish International Development 6 Friedrich Ebert Stiftung. 7. Peace Corps. 8. Konrad Adenaur Foundation. 9. United States Agency for Internati 10. International Monetary Fund. 11. World Bank 12. Japanese International Co-operatic
13. Asian Development Bank.
(c) any trainee sent to Sri Lanka under a Te its Specialised Agencies or of the C organization approved by the Ministe
Such an individual is liable to taxon any other inc resident.
Military personnel of foreign countries
The official emoluments arising in Sri Lanka, a derived from Sri Lanka, of the following are ex
(a) members of any naval, military or airfc
(b) persons employed in a civil capacity t resident in Sri Lanka for a period exce commencement of such employment, connected with the presence in Sri L.
Non-citizens employed by the Asia Foundation
The official emoluments arising in Sri Lanka, and of a non-citizen employed in Sri Lanka by the A
19

ved by the Minister of Finance as being, similar
SCaS.
ch Centre. Canada. orps, U.S.A.
S.
Agency.
onal Development.
in Agency.
2chnical Co-operation Programme of the U.N.O and olombo Plan Organization, or of any similar r.
ome arising in orderived from Sri Lanka as a non
(section 9(1)(f)(iii-v))
nd any income not arising in or empt from tax,
rce of a or with the concurrence of the Government,
ly a foreign Government who, notbeing persons eding three months immediately prior to the date of are employed in or visit Sri Lanka for any purpose anka of such personnel referred to in item (a).
(section 9(1)(f)(vi-vii)
any income notarisingin orderived from Sri Lanka, sia Foundation are exempt from tax.
(section 9(1)(f)(viii)

Page 30
(8) Citizens employed by the U.N.O. or its specia
The official emoluments of the following are
(a) any individual employed as an expert, the U.N.O. or any of its Spccialised A
(b) any individual employed as an expert, U.N.O. or any of its Specialised Agen
(i) the World Tourism Organization (ii) the International Irrigation Mana (iii) the Colombo Plan Bureau, or (iv) the Asia Development Bank.
(9) Travci by employees
Certain benefits received by an employee are These include:
(a) the cost of passage granted to a nonduties, to visit his home abroad or services;
(b) the cost of passagc granted to the wif
to visit his or her home abroad or to
(c) any allowance granted for travelling. in connection with his employment (
travel abroad may be for training);
(d) the value of frce transport by motoric employce's residence and place of v
Any sum received by an employ pcrformance of his duties is not tre
(10) income from employment abroad.
The cmoluments carned by, or the pension aris
(a) services rendered by him; or
(b) past services rendered by him or his
2

lised agencies, employees of certain organizations
exempt from tax:
adviser, technician or official by gencies :
adviser, technician or official by the cies:
.
gement Institute,
(scction 9(1) (g-h)
exempt from tax.
citizen to enable him to come to Sri Lanka to assume to return from Sri Lanka on the termination of his
2, son or daughter of such person to come to Sri Lanka,
return from Sri Lanka,
subsistence and lodging in respect of travel abroad such allowance could include the cost of passage, and
:oach provided by an employer for travel between the vork.
(section 9(1) (ii,m)) ec as reimbursement of cxpenscs incurred in the ated as benefit reccived by him.
sing to, a resident individual in foreign currency, for
Spouse,

Page 31
outside Sri Lanka are exempt from tax, if such or such emoluments or pension (less reasonabl
The Assessor should call for evidence of remitt depend on the facts of each case.
(ll) Income from employment on a ship
The emoluments earned by an individual empl
(a) owned or chartered by a company reg
of 1982, and
(b) dccimcd to be a Ceylon ship by reasc
section 30 of the Merchant Shipping
(l2) Other income not exceeding Rs. 2,400
Where the total statutory income of an individua Rs. 60,000 and the othcr profits and income not are exempt from tax.
(3) Investment income derived by a provident or p
Such part of any sum paid to an employee at the fund for period commencing on or aster April income tax.
Where tax has been paid by deduction or otherw tax will be resunded on an application made in the cnd of the rclevant year of assessment.
3.6 Treatment of retirement benefits
(1) Profits from employment include certi These receipts arc profits for the yea
taxed at lower rates if thc employer h which is uniformly applicable to all
21

:moluments or pension arc paid to him in Sri Lanka
cxpenses) are remitted to Sri Lanka.
(section 9(1) (k))
nce of money. What are reasonable expenses would
pycd on a ship is exempt from tax, if that ship is
istered under Part VII of the Companies Act, No. 17
in of a determination made under paragraph (c) of Act No. 52 of 1971.
(scction 9(1) (kk)(12)
consists only of employment income not cxceeding exceeding Rs. 2,400 such other profits and income
(section 9(1) (I))
2nsion fiind
ime of his retirement from any provident or pension 987, from investments made by it, is excmpt from
(section 9(1) (u))
se in respcct of such other profits and income, such writing by the individual within three years of
in lump sum receipts of an employee at retirement. r of assessment in which thcy fall due. They are as made such payments in accordance with a schcme nis employecs.

Page 32
(2)
The receipts so taxed are:
(a) retiring gratuity up to a maxim
(b) commuted pensions;
(c) withdrawals from a approvi
contributions to it after 01.04.
(d) withdrawals from a regulated pro to it, and the employee's contr contributions of the employer contributions and interest) the employer, if the employer had
(e) compensation for loss of office
(f) withdrawals from Employees
Following receipts, however, are exem
(i) receipts relating to the employ
(ii) such part of the receipts from a represents income of the fund fo from investments made by it.
(iii) such part of the receipts from a to any employee at the time of formed under the Conversion Business Undertakings into to the period of service in any business undertaking, as the ca
The receipts, being profits for the year in the total statutory income of that yea) that which would be the taxable incom statutory income is taxed at the follow
On the first Rs... 200,000 On the next Rs... 50,000 On the next . Rs... 50,000
On the balance
Note - When the retrying gratuity
normal income and taxed
22

um of Rs. 1,500,00
'd provident fund (excluding the employee's j4);
videntfund (excluding the employees contributions ibutions to 31.03.68 and the interest on such , if the employer had paid tax at 15% on such
interest on such contributions of the baid tax at lis% on such contributions and interest),
; or employment,
Trust Fund.
pt from tax;
ments referred to in para 10 (2)
iny provident or pension fund, as ranyperiodcommencingonorafter Aprill, 1987,
iny rctiring gratuity or commuted pension paid his retirement from employment in any company
of Public Corporations or Government Owned Public Companies Act No.23 of 1987, as attributable publiccorporation or any government owned se maybe.
(section 4(1)(c), 9(1)(b), 9(1) (0), 32(2))
of assessment in which they fall due, are included r. The excess of the taxable income of that year over he if no such receipts were included in the total
1 ng:
N 5% 10% 5%
exceeds Rs. 1,500,000 the excess is added to the
at the graduated rates.
(First Schedule, Part IV)

Page 33
3.7
(3) Where the employer does not have a u benefits are made, such payments are received for loss of employment whic to all employees is taxed as a capital
Tax Credit on Profits from Employment.
From the year of assessment 1990/91 employees employment other than lump sum receipts ref 1990/91 and 1991 and 1992/92 the profits from attributable to the profits from employment is c
Tax attributable ܒ to employment income.
The maximum credit of Rs. 500 was raised to 1993/94. The Budget Proposal for 1994 announc credit to Rs. 6,000 for the year of assessment 199 yet been passed by Parliament.
23

hiformly applicable scheme by which such terminal taxed at the normal rates. However, compensation h is not paid out of a scheme uniformly applicable gain as set forth in sub para (3) of Section 32.
(See Section 32(2))
are entitled to a tax credit against taxon profits from rred to in Section 32(2) of the Act. For the years employment whichever is less. The amount of tax omputed in the following manner:-
Profits from employment X Gross Income Tax Assessable income.
Rs. 1,800 for the years of assessment 1992/93 and :ed in November 1993 has raised the maximum tax 4/95. The law giving effect to this proposal has not

Page 34
l.
2.
2.
Less:
2. l. l.
2.1.2
CHA
CAPTA
Incidence of Capital Gains.
The transactions which result in a capital gai they are -
(a) the change of ownership of any pro (b) thc surrender of relinquishment of a (c) thc transfer of some of thc rights in : (d) thcrcdcmption of any sharcs, deben (c) thc formation of a company:
(f) the dissolution of a business or the li (g) the amalgamation or merger of two (h) any transaction in conncction with t
to such transaction rcccivos a comin
Computation of Capital Gains.
Capital Gains arising on thc change of owne
Value of the Property at the time of changc (
(i) Valuc of Property at the time of acq (ii) Deductible expenses
Value of Propcrty at the time of change of o'
(i) The saic price, if the change of own (ii) The market value at the time of the cha
other than by sale.
Valuc of the Property at the timc of acquisiti
Where the property was acquired prior to 1.4. at the time of acquisition. Where the proper acquisition is:-
(a) ifthc acquisition was by purchase, t
b if thc acquisition was in anv other m
C
2

PTER 5
L. GAINS
in and assessable to tax arc cnumerated in the Act and
berty occurring in any manner whatsoever, ny right in any property;
any propCrity,
turcs or othcr obligations:
iquidation of a company. or more businesses or companies; or
he promotion of which any person who is not a party hission or reward.
rship of a property is computed as follows:-
pf ownership of property.
uisition.
wncrship is:-
ership is by sale. unge of ownership, if the change occurs by any manner
O.
77, the market valuc as at 1.4.77. is taken as the value ty was acquired after l.4.77, the value at the time of
hc cost of the purchasc, or
ember the market value at the time of acquisition.
4.

Page 35
2.1.3. Dcductible Expenses
The following expenses are deductible in arriv
(a)
(b)
Expenditure (other than the purchase connection with the acquisition of the p1 This refers to acquisitions made on or The expenditure contemplated would
Lawyers’ fees; Brokers fees; Stamp fees etc.
Note:
Where the cost of acquisition of any pro or its market value as at the date of ac such acquisition, are not allowable.
Expenditure incurred on or after l.4 19 for any improvements, additions oralter is allowable as a deduction fro normal
Note
(i) The expenditure should be i
(ii) Replanting expenditure can
(iii) Capital expenditure which h sections 10, 5353A or 53B under section 23 or section 1979 cannot be deducted.
(iv) Repair ex expenditure (as cannot be deducted. Repair
White washing Maintenance expenditure. Note.
No deduction of any sum is allowable. No special provisions have been made amalgamate or merge. In the circum: under scction 7(1)(a)- the change of ov
25

ing at capital gains:
rice, if any) incurred on or after 1.4.1977 solely in
operty by the person to whom the capital gain arises. after 14, 1977. be:
perty is deemed to be its market value as at 1.4.1977 uisition, the expenses incurred in conncction with
)77 by the person, to whom the capital gain arises, ations to the property (other than expenditure which
income).
incurred on or after 1.4.1977
not be deducted.
as been allowed as a Tax Ordinance or, under of the Inland Revenue Act, No. 4 of 1963, or 31 (2)(c)(i) of the Inland Revenue Act, No. 28 of
opposed toimprovements, additions or alterations) cxpenditure would include:
fordetermining capital gains when two businesses tances anygain arising would have to be brought "nership of property.

Page 36
(ii) to any other person
the value of the considera
(i) Promotion of a transactio The capital gain is the sur
2.1.4 Basis of determining value
(l) Value of the property at the time oft
(i) If the change occurs by sa
(ii) If the change occurs in
any other manner
(2) Value of the property at the time of acquisitic
(a) General rule.
(i) Property acquired be
fore 14.77.
(ii) Propcrty acquired on or
aftcr 1.4.1977. If the acquisition was by purchase If the acquisition was of in any other manner
(b) Special cases.
For the basis of determining the valu 7.05
(c) Expenditure incurred solely in conne
transfer of the property,
Expenditure would include:
Lawyers' fees, Brokers' fees, Stamp duties.

tion received.
(section7(2)(f))
n by a person who is not a party to it. m received as commission or reward.
(section 7(2)(g)
he change of ownership:
le - the sale price.
sale - the market value of
the property at the time of the change of
ownership.
Op.
the market value as at 1.4.77
- the cost of the purchase
- the market value of the property at the time of acquisition
2 at the time of acquisition in special cases. see para
(section 7 (3))
:ction with the transaction which resulted in the
(section 7(4))

Page 37
Example
Perera purchased a house for Rs. 250,0 500.00. Perera incurred the following for Rs 1,000,000.
(i) Rs. 60,000 in the provision c
(ii) Rs. 100,000 in the constructi
(iii) Rs. 10,000/- in fencing in 19
(iv) Rs. 5,000/- in inserting adve
house.
(v) Rs. 25.000/-paid to the brok
Computation of Capital Gains.
Sale Price
Less:
(i) Value as at 4.77 - RS. 50( (ii) Cost of additional
OOS - RS. 100) (iii) Cost offencing - Rs. 10, (iv) cost of Advertisement - Rs. 5, (v) Brokcrage - RS. 25
Capital Gain
Surrender or Relinquishment of a right in a pro
In the case of a surrender or relinquishment of a received less any expenses is the capital gains l
Example:
Silva transferred a house to his son on l Mrs. Silva. The son decided to sell the hot also transfers her right to the purchaser gains liable to tax by Mrs. Silva is Rs. .
27

) on 1.3.72. Its market value on 1.4.77 was rs. expenditure before selling the house on 1.7.1993
f drainage facilities in 1975.
on of two additional rooms in 1980
83
tisement in the newspapers for the sale of the
er for the sale of thc housc.
Rs. 1,000,000
),000
,000 000 000 000 RS. 640.000
Rs. 360,000
berty.
right in a property by a person, the consideration table to tax.
st July, 1980 subject to life interest in favour of 'se on lst January, 1994 and the mother Mrs. Silva, The property is sold for Rs.200,000/-. The capital 00,00/-.

Page 38
2.3
2.4
2.5
Transfer of some rights in any properly.
A person may transfer some rights only in : The transferrer is liable to Capital Gains i
Capital Gains is computed in this case as fo
Value of the consideration received
Less : Expenscs
Example:
Percra who is the owner of a land grants his a decd. Consideration received is Rs. 10,00 Perera.
Capital Gains Rs... 10.000 .
Rs... 9,000/-
Redemption of shares, Dcbcntures or other
Capital Gains also arise on the redemption
Capital Gains is computed as follows:- Value of thc consideration received
Less: (i) Value at the time of acquisition
(ii) Expenses
Example: Perera purchased debcnt 180,000/-. He redcenned liable to Capital Gains o.
Formation of a Company.
Sometimes it happens that a promoter in the are treated as capital Gains. The capital gai
Value of the consideration received
Less: Expenses

i property keeping to himself the right of ownership. n terms of section 7(l)(c) of the Act.
llows:-
neighbour a right of way. This is granted by executing )0/- and legal expenses of Rs. 100/- was incurred by
. Rs. 1,000
obligations.
of shares, debentures or other obligations.
ures in Millgills Ltd. on list July, '87 at a cost of Rs. them on lst May, '93 for Rs. 200,000/-. Perera is n Rs. 20,000/-
formation of a Company realises profits. These profits Lns is computed as follows:-
28

Page 39
2.6
2.6.1
Dissolution of a Business & Liquidati
Dissolution of a Business
In the casc of a dissolution of a businc
Value of all property received at time
Less: Value of his/her share of capital whe
Example:
A & B are partners in a b invested Rs 100,000/- each the business by transferring liabilities of the business th
Capital Gains liable on A = Rs. 3( = RS. 2( Capital Gains liable on B = Rs. 3 = RS. 2(
2.6.2 Liquidation of a Company.
2.7
When a company goes into liquidation a shareh of his shareholding. The amount received by a sh to capital gains. (However where shares were p not the purchase price but the market value of
Example: A purchased 10000 shares in Mill. Millgills Ltd. went into liquidation the shareholders on 1st July, 1991
Capital Gains liable on A = Rs.
= RS. 1
Amalgamation & Merger of Two or More Bus
In this case the capital gain is the money (if an amalgamation or merger. No deduction is allo
Exemptions
Capital gains arising from the following transa
(а) the sale by any individual or by him and used solcly for ri of that house;
29

n of a company.
ss, capital gains is computed as follows:-
of dissolution.
he/she acquired such share in the business.
usiness commenced by them in April 1985. They On the 31st March, 1990 they decided to wind up the assets to another person X. After meeting all
e balance received by A & B is Rs. 600,000/-.
0,000 - Rs. 100,000 0,000 00.000 - Rs. 100,000 )0,000
older receives money from the company in respect areholder over and above his purchase price is liable
•urchased prior to l.4.77, the amount deductible a is the share as at 4.77.)
gills Ltd., on 1st July, 1980 for Rs. 100,000. on 31st March, 1990. The liquidator distributed to Rs. 25/- per share of Rs. 10/-.
10,000x (25-10) 5,000/-.
iness.
y) received by a shareholder in consequence of the ved in the computation of capital gains.
rtions are exempt from tax:
he acquisition by the State of any house constructed sidential purposes. The sale should be the first sale

Page 40
(b)
the first sale or the first acquisi owned by an individual and use would apply irrespective of an
A housc includes a flat and owner in
(c)
(d)
(e)
(f)
(g)
(h)
()
(k)
(l)
(m)
the passing of any property on
gifts,
change of ownership of
(i) a motor vehicle in
granted, (ii) household effects;
(iii) articles of persona
(There will be noca is due but has not
surrender of a life insurance p
the surrender, transfer or extin
change of ownership of a right (The condition to be satisfied f exploit mustbe a mere right of interest in that property beyond and certain types of mining lea overusufruct only and there is r
apply.)
(i) change of ownersh (i) a trustee to a benel (ii) an executor to an
the sale of stock-in-trade in thc
sale of any dcpreciable asset u used within one year of the sal
sale of movable property, oth stocks, if the capital gains do r
change of oWncrship of any sh
30

tion by the State on or after 1.04.1978, of house d solcly for residential purposes. This exemption y exemption under item (a) above,
cludes a “co-owncro
the death of the owner of the property;
respect of which depreciation has not been
l use other than jewellery;
pital gain on a motor vehicle on which depreciation been granted.)
olicy;
ction of a life interest,
to exploit property, or a claim for this exemption is that the right to exploitation and the assessee should have no this right. A contract for the sale of standing crop scs will fall under this exemption. If the right is oright over the source itself, this exemption will
lip of property passing fromiciary, of meir;
2 ordinary course of business;
scd in a business, if the full proceeds of sale are e for the replacement of such asset,
er than stocks, shares, debentures or debenture lot exceed Rs. 2,000 in any year,
l,

Page 41
(n)
(o)
(p)
(q)
(r)
(s)
(l) in a G.C.E.C.(B.O.I.) Com (2) in a quotcd public company
(i) on or after 26.8.l. (ii) prior to 26.8.1992
the sale of any share/stock held by any venture capital company.
unit trust,
mutual fund, which is granted tax holiday status.
the sale of any unit in any unit trust or mu of such unit.
the sale of property by an individual ol invested within one year of the date of ordinary shares or units in a company g following activities- -
-Pioneering Undertaking -Venture Capital Company -Unit Trust/Mutual Trust -Expansion of industry.
the change of ownership arising on the into a quoted public company or any ot of the business to thc company. To obta prior to 31.03.1977 must be transferre value of the asset on 31.3, 1977 and the hold not less than 80% of the shares
the change of owncrship of any proper acquisition of such [propcrty by the pe
the sale of any treasury bill in thc seco
Capital Losses
(1)
A capital loss could arise only from
(a) the change of ownership of (b) the redemption of shares, dc (c) the dissolution of a business
31

a1hV.
992, where such share has been held for over one year.
tual fund after one year from the date of acquisition
or after 01.01. 1990 where the sale proceeds are sale but before 01.04.1992 in the purchase of new rantcd tax holiday status and engaged in any of the
conversion of aproprietary or partnership business
her company due to thc transfer of any of the assets in this excmption, any asset of the business acquired d to the company ataprice not exceeding the market proprictor or the partncrs, as the case may be, must of such limitcd liability company.....
ty occurring not less than 25 years after the date of son to whom the capital gains arises.
ndary markct effective from 18.8.1993.
(section 14)
any property: bentures or other obligations; or the liquidation of a company;

Page 42
(2)
(3)
(4)
(d) a debt (other than a trade de evidence and which is prov
A capital loss is computed in the same w, loss or the period of ownership is not r
A capital loss is deductible from a perso only if such income includes capital gair basis should be adopted in deducting c maximum rates apply.
The capital loss is deducted
(a) first from the capital gain ta (b) thereafter from the capital g
Any unabsorbed capital loss is carried fo ofa subsequentyear which includes capi
A capital loss is so deductible only if it
Note:
A capital loss arising from a debt (c irrecoverable, (notwith-standing that tl deductible.
Set off of capital losses on death
When an individual dies any capitallo:
liable to be assessed in deductible
(a) - as far as practicable from th income includes a capital ga
(b) in order of recession, from t of assessment preceding tha
Where the déduction of the capital loss givcs risc
32

bt) which is proved to be duc by documentary
2d to be irrecoverable.
(section 29(6) (b))
ay that a capital gain is computed. The type of capital elevant, V
(section 29(6) (e))
n’s total statutory income for anycar of assessment is and only to the extent of such gains. The following apital losses from capital gains to which different
xable at the lowest maximum rate; ain taxable at the next highest rate, and so on.
(see paragraph9)
rward to be set off against the total statutory income ital gains and the deduction is done on the same basis.
would have been taxable had it been again.
(section 29(6)(a))
thcr than a trade debt) which is proved to be here would be no corresponding capital gain), is
ss for the last year of assessment for which he was
e total statutory income of that year, whether such in or not, and is so far as this is not possible,
he total statutory income for any of the three years t last year of assessment.
to a refund, section 29(6)(ii) authorises such refund.
(section 29(6) (d))

Page 43
CHAPT
DEDUCTIBLE & NON-DED OR ASCERTAINMENT OF F
General:
Chapter IV of the Inland Revenue Act provide; liable to tax. This chapter contains two sections the general rule of educatability of expenses and specifically disallowed. These two sections hav provisions with regard to deductions and prohi
General Rule.
Section 23(1) of thee Inland Revenue Act lays governing deductions in ascertaining the profit
terms:-
“There shall be deducted for the purpose of asc any source, all outgoings and expenses incurrec
including ...
The phrase “outgoings and expenses, the term been judicially construed and this will be dealt
“Outgoings and Expenses”
In interpreting this phrase accepted commercial specific statutory provision to the contrary. Wh provided for or where an expense cannot be const expense would be disallowed. In the case of Hay came up for construction by the Supreme Court follows:-
“In therefore, interpreting the expressio deductions as may reasonably and in a c profits”.
In this case a limited liability Company carrying specially rubbcr, kept considerable sums of mon and the Company suffered a loss of Rs. 36,50/-. of the Income Tax Ordinance (which is the sam Supreme Court held the loss allowable. The wo
33

ER 6
JCTIBLE EXPENDITURE
ROFITS OR NCOME
for the basis of ascertaining the profits or income - Section 23 and Section 24. Section 23 lays down section 24lays down the rule with regard to expenses e been amended several times by making special bited deductions.
down what may be regarded as the “general rule' liable to tax. The general rule is in the following
ertaining the profits or income of any person from i by such person in the production thcreos,
“incurred and the phrase “in the production have with below:-
principles are generally followed unless there is are an expense has not been incurred but has been rued as an integral to the production of income such ley & Co., Ltd., v. C.I.R. (3 C.T.C. 115) this phrase of Sri Lanka. Justice Sinnetamby observed as
n outgoings and expenses” one must permit such ommercialsense bemade, in orderto ascertain nett
on the business of buying and exporting produce, y in the office safe. One night the safe was burgled The Company claimed the loss under Section 9 (l) 2 as Section 23 (l) of the Act as an outgoing. The d “outgoings is wide enough to cover losses. The

Page 44
2.3
outgoings must be incurred in the production Court followed the decision in the Australian C.L.R. 344.
“Incurred”
The word “incurred does not only mean paid. A This word, therefore distinguishes the tax contingent liability. In the former there is a le expenses; the benefit of which has been deri nothing more thana provision; the setting asid the liability to pay has not arisen. Exception is specially allowed under Section 23(1)(h) treatment in the valuation of stock. Cost or m. claiming a loss even before the loss has crys
The world “incurred has been exposed to jud guidc was provided by Lord Cooper, in the ca ll l,who said
“From an examination of the numerous cases to the crediting of debiting in a tax computat enquire in which accounting period the right ( the account in that year. I use the vague word ofproper commercial and accountancy practi credit items, if the title to the sum arosc in onc of the credit was not fixed until later will not earlier year. So too in the case of expenses.
In another U.K. case Bernard v. Gahan (13 T. of expenses, in the following manner
If there is a liability which is subsequently c existing at a particular date, the fact that it is, su does not prevent that liability belonging histor of it is ascertained at a later date: but the paym in the accounts, even if the quantum of it can
In arccent Australian case, Alliance Holdings was given a more practical meaning. In this secured by deferred interest debenture stock holders until the maturity date of the debenture which was not payable to the stockholderuntil rejected the claim on the ground that the liabili
34

of profits. In arriving at the decision the Supreme Jase-Charles Moore & Co. v. F. C. ofT. (1956) 95
An expense is incurred if the liability to pay has arisen. treatment between an ascertained liability and a gal liability on the debtor to make good payments of ved. In the latter situation, a contingent liability is 2 of a sum of money to mectfuture expenses on which o this rule is the provision for doubtful debts which
of the Inland Revenue Act. Another exception is the arket value, whichever is the lower, has the effect of tallised.
icial consideration in many tax cases and the classic se of James Spencer & Co. v. I.R. Commrs. 32 T.C.
, the broad working rule which emerges as a guide ion of subsequently maturing credits or debits is to
Dr liability was established and to carry the item into established advisedly, for we are now in the region :e rather than systematic jurisprudence. In the case of 2 accounting period, the fact that the precise amount prevent the eventual receipt of being credited in the
C. 723) Lord Hanworth M.R. dealt with the question
letermined, but which is none the less to be a liability Ibsequently to that date, detcrmined and ascertained, ically to its right place in the accounts. Thc quantum entis to be madcas at the date when it rightly occurs not be fixed at that moment.
Ltd. v.F.C. ofT. (81 ATC 4637), theword“ incurredo :ase the taxpayer borrowed money from the public on which no interest was payable to the debenture . The taxpayer claimed that the interest accrued, and he maturity date, ranked for deduction. The Revenue ty to pay the interest only came into existence on the

Page 45
maturity date and this was the date on which the was discounted by the Court. Woodward. J. in h
“In my mind there is no doubt that the contract that constituted an obligation on the part of the taxpay interest thereon at the rate stated. The obligation v debt however was not payable until some time il I am satisfied that in respect of the deductions cl: tax yearapresent liability to pay the determined int the claim of the taxpayer should be allowed.
A review of the cases on the deducatability or oth clear conclusions, but conflicting authorities in th Colllins & Sons v. CIR (12TC 733) and Whimster losses at a year end cannot be taken into accountf Jute Factory Ltd. (1978 STC 166) and Owen v. S provisions for contingent liabilities to make futu purposes in certain circumstances.
In Edward Collins & Sons v. CIR (12 TC 733), the period for the purchase of stock for delivery after a provision at the year end for the difference betw. payable under the contract. No relief was allowed an anticipated loss (i.e. one which would only aris likely, the goods were ultimately sold at less thanth in respect of unprofi-table contracts which had b.
been executed. The decision was followed in Whil provision for forward liabilities undership charte
The line of authority for treating as allowable ded which have arisen on purchase (or sale contracts contracts made on the terminal markets may be f Peru (36TC 602), which held that provisions for are deductible if properly calculated, and CIR v. T facts were very similar. These cases established til only a possible future liability, it is nevertheless a a reasoned estimation of the likely outgoing and 1 an expense for the current year, on the basis of th
The tax treatment of provisions for contingent li necessarily tentative and further clarification in th case has to be considered on its own merits. The p could be allowed for a contingent liability provid
a. a definite obligation exists, b. it is possible to make a proper valuation as op.
and
35

taxpayer would incur the expense. The argument is judgment said (at pp. 4642-4643)-
existed between the taxpayer and the stockholder er to repay to the stockholder the money lent and vas created at the time the contract was made. The
the future...
aimed by the taxpayer there was in each relevant erestat future date and that in these circumstances
erwise of a contingent liability gives not only no is grey area of tax law. Cases such as Edward & Co. CIR (12 TC814) indicate that unrealised
)r tax purposes and cases such as CIR v. Titaghur outhern Railway of Peru (36TC 602) show that re payments may be taken into account for tax
Company had contracted during its accounting
its year end date at a specified price and it made een the cost of the goods at that date and the price for the provision as it was considered to represent e in the following accounting period if, as seemed eir cost). It was stated that no deduction is allowed een entered into during the tax year but have not
mster & Co. v. IRC (12 TC813) which concerned rs where the market rate had fallen.
luctions any provisions made in respect of losses for delivery after the year end date or on future
ound in cases like Owen v. Southern Railway of future sums only contingently payable to staff
itaghur Jute Factory Ltd. (53) TC 675) where the hat even though a provision may relate to what is llowable for tax purposes provided it represents
elates to an item which can fairly be regarded as Le normal accounting principles.
bilities is a difficult area where conclusions are 2 Courts would of course be most welcome. Each rinciple, however, appears to be that a deduction ed that:
posed to speculative estimate of that obligation,

Page 46
2.4
c. the provision can be properly regarded as
on normal accounting principles rather thi
“In the Production of income
The deducatability of expenditure is somewha of income in Section 23 (l). In the U.K. a mu trade and this term has constantly been an is It is generally accepted that the word in the expenditure ranks for deduction it must be es which it is incurred. If the outlay of expenditu the year under review or a future year, such (
The meaning of thc words “in the production o C.J. provided a lucid exposition in the case of 187 in the following words:
"In my opinion the answer to this contention necessary, for income tax purposes, to lookata producing income. No expenditure, strictly a produces income. It is an outgoing, not an inco to the object which the person making the expe of the business on a profitable basis with that d conducted business, then the expenditure... is assessable income. If it is not a capital expend income of the taxpayer.
It is clear from the above observations of Latl expended must produce a specific amount of i expense becomes relevant for the reason that against his anticipated income. Should he failt become the less deductible. The businessman on an expectation. He does not always know all that he can do is to predict the future.
Lockhart J. in F.C. of T. v. Total Holdings (A following observations:-
"If a taxpayer with a continuing busi or connected with the operations or income, the interest is an allowable expenditurecannot be traced to a parti of the expenditure’.
It is neccssary to evaluate the closeness or r opcrations. Here one has to consider the purp
36

representing a loss or a liability of the current year an a future loss or future liability.
it restricted by the use of the words “in the production ch wider term is used namely: “for the purpose of the sue when the question of deducatability arises. production of income do not mean that before any tablished that it has produccd income in the year in re was for the purpose of earning income, whether in xpenditure would be deductible.
fincome has been considered in many cases. Lathan W. Neville & Co. Ltd. v. F. CofT. (1993) 4. A.T.D.
is to be found in a recognition of the fact that it is business as a whole setofoperations directed towards and narrowly considered, in itself actually gains or ming. Its character can be determined only in relation nditure has in view. If the actual object is the conduct ue regard to economy, which is essential in any wellan expenditure incurred in gaining or producing the ture it should be deducted in ascertaining the taxable
lan C.J. that it is not really necessary that each rupee income. The intention of the person who incurred the it is this expense that he would, if successful, incur O derive this anticipated income, the expense does not , as a rule, expends money during the tax year based whether the expenditure will have the desired effect
ustralia) Pty Ltd. 79 A.T.C. 4279 at 4283 made the
ness incurs a liability for interest being incidental to activities regularly carried on for the production of deduction. The circumstances that each item of cular item of income does not prevent the deduction
emoteness of an expenditure to the income earning ose of the expenditure. If an expenditure is closely

Page 47
related to the income earning operations of a production of income.
Section 119 (a) of the South African Actissimila states “Expenditure ... incurred in the producti African case of Port Elizabeth Electric Transwa in Sri Lanka. In that case, the taxpayer was a tr the company's car was involved in an accident. driver suffered injuries and eventually died. Th costs in contesting the claim of the deceased's the expenses were deductible. The Court heldth production of income, the legal costs incurred in the decision was that the employment of driver company and as the employment of drivers car liability to pay compensation if such drivers w Court considered that the compensation paid by connected with the income-earning activities. T the production of income. As to the legal costs compensation and was not an operation entered costs were disallowed. In distinguishing the ex
"...the purpose of the actentailing expenditure 1 of earning income, then the expenditure attenda attendant expenses can be deducted?'
Tax cases also distinguish between expenses inc expenses after the income has been ascertained
“If the expense has to be incurred for the purpos expense; on the other hand, if the expense is ma expense is not deductible, because it is simply an
Thus, in the case of expense incurred in an established in Smiths Potato Estates Ltd. v. Bol as deductible.
In conclusion, it may be stated that the following which meets the general criteria, qualify for c
income:-
(a) Expenditure incurred with the intentic income. It is not relevant whether or not
(b) Expenditure laid out in a year but which
37

axpayer it can be said to have been incurred in the
rto Section 23(1) of the Inland Revenue Act, which bn of the income'. Thus, the decision in the South y Co. Ltd v. CIR (1935 if SATC 13) has relevance unsport company. One of its drivers, while driving The car ran into a building as a result of which the e company paid compensation and incurred legal epresentatives. The taxpayer maintained that both at whilst the compensation paid was incurred in the resisting the claim were not. The rationale behind was necessary for carrying on the business of the ried with it as a necessary consequence a potential ere injured in the course of their employment, the the company must be regarded as being so closely he expenditure formed part of the cost incurred in , since it was expended in resisting a demand for upon for the purpose of earning income, the legal penses, Watermeyer C.J. Said:-
must be looked to. If it is performed for the purpose nt upon it is deductible. The other question is, what
curred in the production of income and payment of . The guiding principle appears to be that:-
c of gaining the company’s profits, it is deductible de after the profits have been ascertained, then the application of the profits which have been earned.”
ppeal against an income tax assessment, it was
ard (30 TC 244) that such expenses will not rank
categories of expenditure would, in addition to that cduction as being incurred in the production of
n, at the time the outlay was made, of producing any income in fact was produced.
had not produced any income in that year.

Page 48
(c)
(d)
Expenditure incurred, not to produce i.
Expenditure which is relevant to the ordinary principles of commercial trad
Deductions specifically allowed:
The Inland Revenue Act (in Section 23) after procccds to provide for specified dcductions deductible in ascertaining the profits or income on by a person. These specified deductions co
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Depreciation in respect of plant, mach certain buildings. (This will be dealt v
Lease rental paid in respect of plant, ma under a lease agreement.
Bad debts and provision for bad and c Commissioner-General of Inland Rev
A sum expended on repairs (but not re implement, utensils or article employ vocation. The Act has placed a limitat to a building which has been used by a for commercial purposes. The limit is respectofsuch premises Buttheamour spent on repairs.
Interest incurred by a person.
Contribution by a person to approved be approved by the Commissioner - C
Turnover taxpayable in terms of the T payable to Provincial Councils
Expenditure incurred by a person in c research for the development of the b
38

income, but to preserve the source of income.
particular trading unit and which is permitted on ing.
stating the general rule with regard to deducatability which but for inclusion in that section may not be 2 from trade, business, profession or vocation carried ontained in section 23 (1) will be dealt with below:-
hinery, sixtures, motor vehicles, office furniture and with in detail in a later chapter).
chinery, fixtures, motor vehicles and office furniture
loubtful debts considered reasonable by the
CC.
Section 23 (i) (h).
newal) of plant, machinery, fixtures, buildings, 2d by a person in his trade, business, profession or
ion of the amount all allowable on account of repairs company carrying on the business of letting premises 10% of the gross rent receivable by the company in tallowable in any particularycaris the actual amount
-Section 23 (1) (g).
-Section 23 (1) (i).
bension, provident or Savings fund. The fund should
eneral of Inland Revenue.
- Section 23(i)(j).
urnover Tax Act No. 69 of 91 and any turnover tax
-Section 23(1)(k).
arrying on any scientific, industrial or agricultural
usiness carried on by him
-(section 23(1)(1).)

Page 49
(i)
()
(k)
(1)
(m)
(o)
Expenditure incurred by a person in
(i) Opening up land for cultiva (ii) Cultivating the land with pl (iii) Construction of tanks or po
waters for the rearing of fis (v) Purchase of fish to be reare
Expenditure incurred by a Company in
Expenditure incurred in the payment c employment.
The annual contributions by a person to Inland Revenue) maintained for the pay Payment of Gratuity Act No. 12 of 19
That part of the lumpsum payment mad premiscs, as bears to the total lump sur months in the year of assessment for w of months compriscd in the lease, is an
Any sum paid by a public corporation c special levy to the Government.
This deduction is allowable for year of
Double Deduction.
In ascertaining the profits or income of in the export of any commodity manufa on the expenditure incurred by such per devclopmentactivity (Scction 23A oft respect of the export of the following c
a) Black Tea in bulk
b) Crepe Rubber
c) Sheet Rubber
d) Scrap Rubber e) Coconut oil
39

tion or for animal husbandry.
antS. nds or clearing of and preparation of any inland h.
d in such tanks or ponds.
the formation.
-Section 23(1)(0).
fgratuity to employees on the termination of their
- Section 23(1)(q).
a fund (approved by the Commissioner-General of
ment of gratuity under the Payment of Gratuity Act
83 to employees on thctermination of their services.
-Scction 23(1)(r).
2 in connection with letting or leasing of commercial n payment the same proportion as the number of hich lease rent is payable bears to the total number
allowable expense.
- Section 23(1)(s).
r Government owned business undertaking as a
assessment 1986/87 and subsequent years only.
any resident person from any undertaking engaged ctured in Sri Lanka, a double deduction is allowed son for the purpose of any approved export market he Act). However, this deduction is not allowed in ommodities:-

Page 50
(p)
f) Desiccated Coconut
g) Copra
h) Fresh coconuts
i) Coconut Fibre
j) Any other commodity specif
Gazette.
The section however, has certain restrict These restrictions.
aᎨᏣ: --
i. In respect of any trade, fair or of only tow employees will b
ii. In respect of any trade office
allowed.
iii. There remuneration that wi
approved by the Controllero
The term “export market developmentac
i. Participation in any trade fail
ii. Maintaining any trade office
iii. Inserting any advertisement
ίν. Preparing, printing and publis
literature.
V. Any other activity which is e.
of any commodity (other paragraph which are treated
This expenditure which qualifies for do period from list April, 1990 and 31st M.
Double Deduction in respect of expend Agricultural research.
A deduction of twice the amount of exp
undertaking for the manufacture of any allowed in the computation of profits ol
40

led by the Minister by notice published in the
ons on the deducatability of this double deduction.
trade exhibition the remuneration paid on account e allowed
the remuneration of three employees only will be
|l be subject to this double deduction is the amount f Exchange.
tivity as used in Section 23A is defined to mean:-
or trade exhibitions held outside Sri Lanka.
in any location outside Sri Lanka.
in any publication, published outside Sri Lanka.
hing of any catalogue, brochure orother promotion
xclusively for the purpose of promoting the export than those commodities mentioned in the first as traditional products).
uble deduction should be incurred between the arch 1995. - (Section 23 A)
iture on Scientific, Industrial or
enditure incurred by a person who carries on a
commodity in providing any of the following is
income of that person:-

Page 51
(a) Scientific Resear
(b) Industrial Resear (c) Agricultural Res (d) Training in Sri La
training is direct or quality of s
The expenditure is allowable subject to
(i)
(ii)
(iii)
The expenditure should have March, 1995.
Deduction will not be allowed of the Act.
Deduction will not be allowed
of the Act.
Deduction specifically prohibited.
The Act in Section 24 specifically prohibits the c
profits or income.
These are:-
(a)
(b)
Domestic or private expenses. The Expend of a person and his place of business is al in the case of a person carrying on a profess a room for his or her consultations.-
Travelling Expenses
The following rules will govern the treatn
(l)
Allowable expenses (travelling wi
The object is to allow all travelling Sri Lanka in the production of inco
(i)
(ii)
Where a person carrying on a allows his employees to use) a business, profession or vocati with that motor vehicle are all
Where a person carrying on a ti vehicle partly for his private t
41

ch
ch
arch
nka of an employee of such person where such y related to upgrading the manufacturing process uch commodity. (Section 23B).
he following restrictions:-
been incurred after April 1, 1990 and prior to 31st
if such expenditure is allowable under Section 23
if such expenditure is prohibited undersection 24
leduction of certain expense in ascertaining the
liture incurred in travelling between the residence so disallowed. This prohibition will not apply tion if he or she has in his or her place of residence
(Section 24(1)(a)).
nent of travelling expenses.
hin Sri Lanka).
expenses actually incurred in travelling within me so that -
trade, business, profession or vocation uses (or motor vehicle solely for the purpose of his trade, pn, the running expenses incurred in connection owed.
ade, business, profession or vocation uses amotor avelling, the cost of travelling for the purpose of

Page 52
(2)
(iii)
(ν)
his trade, business, profession of such cost cannot be ascertained,
In the case of a motor vehicle ov profession or vocation, which i. executive officer, and where the private travelling, the running ex the books of account show that travelling and the motor exper reimbursement of cost of private salary (including the cost of priv incurred on private travel canno considers to be the amount so in
The expenditure incurred by a transporting employees of such deductible.
It is to be noted that the depreciation a scooters and bicycles used by the no
Disallowable expenses (Travelling w
(i)
(ii)
(iii)
In the case of a motor vehicle ov profession or vocation which i executive officer, and where the of such private travelling, the en disallowed.
Travelling expenses between re:
Expenditure incurred by a perso vocation on travelling done by hi of employment are disallowed.
It is to be noted that depreciation vehicles used for travelling are di is done by the proprietor, partner: officers. An allowance for depre transporting employees to or fro
42

vocation-based on a reasonable proportion, if are allowed;
wned by a person carrying on a trade, business, s used partly for the private travelling of an : executive officer reimburses the cost of such penses of the motor vehicle are allowed. Where the salaries account is debited with the cost of ses account credited, this will be treated as travelling. PAYE tax should be deducted on the late travelling). Where the expenses actually t to be ascertained, such sum as the Assessor curred, may be taken into account.
person in operating a motor coach, used for person, to and from their places of work, is
(Section 23(1) (p))
tlowance are granted in respect of motorcycles, n-executive staff.
(Section 24(2)(a))
ithin Sri Lanka)
Vned by a person carrying on a trade, business, is used partly for the private travelling of an
: executive officer does not reimburse the cost tire running expenses of the motor vehicle are
(section 23 (1) (n) (i)
sidence and place of business are disallowed.
(section 24(1)(a))
in carrying on a trade, business, profession or semployees between their residences and place
(section 23 (1) (n) (ii))
and the cost of renewal in respect of all motor sallowed-irrespective of whether the travelling s, directors, executive officers or non-executive ciation is deductible for a motor coach used for
mtheir places of work.
(section 24(2)(a))

Page 53
(3)
(c)
(d)
(e)
Travelling outside Sri Lanka
(i) In the case of a trade, business, p Sri Lanka all travelling expens However, the expenses incurred with such trade, business, profes
(a) the promotion of the expo
(b) the provision of any servi
(c) the promotion of the arriv; plan approved by the Cey are allowed.
(ii) The cost of air and sea passage to Lanka for employment are allow In the case of persons who are bro with the SriLankabusiness, the ci will be allowed in full as such ex travelling expenses of the Sri La
(iii) Passage expenses of employees
a deduction.
(iv) Where a portion of Head Office at Sri Lanka profits the travel business is carried on in Sri Lanl will apply.
Any annuity, ground rentor royalty pa profits or income. Section 24(1) (m). assessable income.
Any sum recoverable under a contract
as an expense unless the insurance pr
Entertainment expenses incurred by t totally disallowed in the hands of the executive officers are also disallowed
43

rofession or vocation carried on or exercised in ses incurredoutside Sri Lanka are disallowed. in travelling outside Sri Lanka in connection ision or vocation solely in connection with -
rt of any article or goods, or
ces for payment in foreign currency,
al of tourists to Sri Lanka in accordance with a lon Tourist Board,
section 24(1) (e))
) and from Sri Lanka of persons brought to Sri ved as a deduction to the employer. ught to Sri Lanka for consultation in connection Ostofairandscapassages to and from Sri Lanka penses are not considered as forming part of the inka business.
sentabroad for full time training are allowed as
expenses is allowed as a deduction in arriving tling expenses are computed as though the ka and the rules relating to travelling expenses
id are not deductible in the ascertainment of the But these sums are allowed in ascertaining the
t of insurance or indemnity cannot be deducted oceeds are treated as income under section 89.
(section (l) ())
he employer or any one of his employees are
; employer. Entertainment cxpenses paid to
l in the hands of the employer.
(section 24 (d), 24(1) (e))

Page 54
(f)
(g)
One quarter of the expenditure incurri assessment 1992/93 and prior years. A deduction. With regard to the expendit the full expenditure is allowable for all is incurred solely in connection with provision of services for payment in f
Taxes payable:
(1)
(2)
As in most countries it is the pract country as a deduction unless doubl income tax is due. Income arising is due. Income arising in a foreig to tax in that country and such taxi by way of an allowance against t
On the otherhand, income tax, wc. imposed in Sri Lanka are not ano ofthe income andare therefore dis resident.
Section 24(1)(l) in enumerating
above principle.
The taxes to be disallowed are:
(i) income tax, super tax, Surt which an agreement for the into (subject to the provisic
(ii) Commonwealth tax as defi
(iii) Sri Lanka income tax or su
(iv) any other tax which may be
(v) the whole of the Defence I
01.01.1992, one-half of commencing on 01.04.199 for any quarter commencir
The turnover taxpayable in resp. deduction incomputing profits an deductible is the turnover tax pay
44

d in advertisement is disallowed for years of fter 14.93 the full expenditure is allowed as a ure incurred in advertising outside Sri Lanka, years of assessment provided the expenditure the export trade of articles or goods or the oreign currency.
(section 23 (1)(f)).
ce in Sri Lankato allow taxes paid in a foreign etaxrelieforreliefinirespectofCommonwealth in a foreign country to a resident of Sri Lanka n country to a resident of Sri Lanka is subject sacharge on the income for which either relief ax or a deduction from income is due.
alth tax and similar taxes on income and wealth utgoing or expense incurred in the production allowed to any person whetherresidentor non
the taxes to be disallowed, gives effect to the
ax or a similar tax payable in a country with avoidance of double taxation has been entered ons of section 82(l)(e));
ned in section 83,
rcharge on income tax,
2 specified by Order published in the Gazette.
levy payable for the quarter commencing on the Defence Levy payable for the quarter 2 and one-third of the Defence Levy payable ng on or after 01.07.1992.
(Section 24(1)(1)).
2ct ofan year of assessment is allowable as a lcome for that year of assessment. The amount able under the Turnover Tax Act, No. 69 of

Page 55
(h)
(i)
(j)
(k)
1981, less any deductions allow statute enacted by any Provincia
(3) The income taxpayable in respec
after April 1, 1993 by any public in accordance with section 113 computing profits and income of
Research and development expenses
The expenditure incurred by a pers( agricultural research for the develop) such person is allowable as a deducti
Taxation - Accountancy fees
Annual Taxation/Accountancy fees p. of a trade, business, profession or voc of tax returns and tax computations, v
Taxation/Accountancy fees incurred with valuations will be disallowed.
It should be noted, however, that wher. will be made with a view to ascer relevant year and whether it includes
Subscriptions
Subscriptions to trade associations and business are allowable as a deductions exercising a profession to a professiona professional journals are allowable, e. Sri Lanka, subscription to the Sri Lank by a doctor, engineer or scientist. Subs with the business are not allowable.
Penalties
Penalties incurred for infringement of
(1) Embezzlement
Embezzlement byan employee is con
45

ble under section 47 of that Act or under any
Council.
tofany year of assessment commencing on or orporation referred to in sub-para 3.10(2)(B), M of the Act is allowable as a deduction in such corporation for that year of assessment.
(Section 23(1)(k)).
n in carrying on any scientific, industrial or ment of any trade or business carried on by
).
(section 23(1) (10)
aid for auditing and preparing the accounts ation, including fees paid for the preparation vill be allowed as a deduction.
in prosecuting tax appeals or in connection
2 the fees paid appear to be excessive, inquires taining whether the payment relates to the fees for dealing with tax appeals or valuations.
to trade journals which are connected with the . Similarly, subscriptions made by a person lbody or institute or for the purchase of current ... a lawyer's subscription to the Law Society of a Association for the Advancement of Science ription to institutions which are not connected
the law are not allowable as a deduction.
sidered to be an allowable deduction, if

Page 56
(m)
(n)
(o)
(i) it is a loss which is incidental
(ii) the money that was lost was p
Computers
The expenditure incurred on compu basis -
(i) The cost of purchasing a comp
capital expenditure
(ii) Where a computerishired eithe
of hiring the computer will be
(iii) Expenditure incurred in conn
computer can be brought into expenditure would include the it
(iv) Where a computer is purchased preliminary work before the co the cost of the computer and c; expenditure.
(v) Capital allowances will not be with the initial systems analysis is hired from the manufacturer or fixtures.
(vi) Expenditure on training staff v
Management Fees :
Management fee paid by a person (c trust or mutual fund) as consideratic profession or vocation carried on b Section 23 of the Act. Section 24(1) In terms of section 24(1) (s) the am
SUS -
(i) Rupees one million (Rs. 1,000
O
(ii) Such amount determined by t being reasonable and comme
Section 24 (l) (h) of the Act prohib
46

o the conduct of the business, and
art of the circulating capital of the business.
ters will generally be dealt with on the following
uter and its related software will be treated as
r from the manufacturer or from a bureau, the cost an allowable deduction against profits.
ection with the preliminary work before the use will be treated as capital expenditure. Such litial system analysis and the initial programming.
l, the expenditure incurred in connection with the mputer can be brought into use will be added to apital allowances will be granted on the total
allowed on expenditure incurred in connection and the initial programming where the computer as there is no purchase of any plant, machinery
vill be an allowable deduction against profits.
other than any venture capital company, any unit pn for the management of any trade, business, y such person is allowable as a deduction under (s) places a restriction on the amount allowable. ount allowable is the higher of the following
,000) or 1% of the turnover whichever is lower,
he Commissioner-General of Inland Revenue as }rcially justifiable as such consideration.
its the deduction of the following :-

Page 57
(i) Expenditure of a capital natu
(ii) Loss of capital.
What is capital expenditure and what is revenue there is no rule of thumb by which capital c expenditure. Generally speaking, expenditure wh or a capital asset would be of a capital nature. Juc could be applied to distinguish capital expenditu
a) Whether the expenditure refers to
b) Whether the asset of an enduring r
c) Whether the expenditure is an initi
d) Whether the expenditure was mad
Examples of losses of a capital nature which wi سته alf C
a) Loss of money lent exceptin the cas it is an integral part of the business
b) Losses in respect of fixed capital a
ο) Losses on the realization of shares
in shares.
(p) Section 24(1)(i) of the Act prohibits a dec
by such person".
Repairs should be distinguished from improveme as a deduction under section 23(1)(g). What is 23(1)(f) also allows the deduction for the amoun depreciation has been granted in respect of suc replacement which involves an improvement of materials have been uscd to those originally used marble flooring, in substitution there is a mate replacement.
A general test was laid down by Denning L.J. in 3 A.E.R. 264 :-
"If the work which is done is the provision of s is properly speaking, an improvement, but if
47

e incurred by a person.
expenditure depends on the facts of each case and xpenditure can be distinguished from revenue ich relates to the acquisition of a source of income licial decisions have suggested certain tests which re from revenue expenditure. These are :-
fixed or circulating capital?
ature is created?
all outlay?
2 to acquire goodwill or a right to earn profits?
tl not be deductible in terms of section 24(1) (h)
e of money-lenders or financiers and others where
to grant loans.
ssets by fire, theft etc.,
2xcept where it is a business of a company to deal
luction of the "cost of any improvements effected
nts or alterations. The cost of repairs is allowable lisallowed is the cost of improvements. Scction t spent on renewal of any capital asset where not h assets. In cxamining the claim for repairs or he assets, it is necessary to see whether different For example, if a cement flooring is replaced by rial alteration an improvement and not a mere
the case of Morcom v Campbell Johnson (1953)
mething new for the benefit of the occupier, that t is only the replacement something already

Page 58
there, which has become dilapidated or wol modern equivalent, it comes within the ca
In conclusion, the test may be stated thus:- has
the income-carning capacity or does the work u asset to a state in which it will continue to earr
48

in out, then albeit thatis a replacement by its more legory of repairs and not improvements."
a new asset been created resulting in an increase in indertaken merely represent the cost of restoring the
the income as before.

Page 59
CHAPT
CAPITALAL
1. Allowance for Depreciation.
(A)
(B)
Plant, Machinery and Fixtures.
(1) In terms of Section 23(1)(eee) of is granted to a person who acqui the cost of acquisition. The acqui any of the following methods:-
a) purchase
b) gift
c) inheritance
d) exchange
e) any other manner.
The section also requires that the trade, profession, business or vo the allowance. The question arist should be in the same year. This that on a proper construction of S not be in the same year to be { fixtures acquired in one year and in a subsequent year will be entitl in that year.
What are Plant and Machinery?
The Act does not define the words plan determine what is and what is not mach. a particular asset could be said to be pla the attention of the Courts in many coul available. We have to therefore look foi
The earliest decided case is that of Yar which Lindley L.J. made the following "Plant in its ordinary sense includes what On his busineSS - not his Stock-in-trade chattels, fixed or movable. alive or dead business" In that case, Esther M. R. & Li his "plant
49

ER 7
OWANCES.
the Inland Revenue Act depreciation allowance res any plant, machinery or fixtures at 331/3% of sition of the plant, machinery or fixtures can be by
plant, machinery or fixtures should be used in the 2ation carried on by such person to be entitled for 2s whether the acquisition of the asset and the use has not been judicially construed. It would appear ection 23(1)(eee) the acquisition and the use need 2ntitled to the allowance. Any plant, machinery or used in the trade, business, profession or vocation ed in the year of acquisition although not put to use
t' and 'machinery'. Although it is not difficult to nery' in the case of plant' the question of whether nt for purposes of capital allowances has received tries. In Sri Lanka no decisions of the Courts are guidance to the cases decided in other countries.
mouth v. France (1887) (19 Q.B.D. 466) in observations :- ever apparatus used by a businessman for carrying which he buys or makes for sale but all goods and , which he keeps for permanent employment in his hdley L.J. held a wharfinger's horse was a part of

Page 60
In the U.K. case Cole Bros v. Philips (1981 question: what is plant. He said:-
"Parliament has not attempted to put an end Many judges have made the attempt. The mo the task...If they "traverse the whole gamut Scotland and the Sea into Australia in their S unlikely objects, from a horse to a swimmir Faced with such application of the word, all pardoned for finding anything, or almost an justified in making any number, or almost illogical distinctions.....The philosopher sta unnecessary to define a Great Power becaus met it."
The functional test of apparatus is of greatin apparatus may perform it function passivel
In the case of Wangaratta Woollen Mills Ltd. in question, except for the external walls an abusiness of dyeing and spinning worsted ya to handle problems of vapour evacuation, c maintenance of constant temperatures and (
Mc Tiernan J. Stated :
"I am of opinion that the plaintiffs dy does 'play a part' itself in the manu convenient setting for the plantiff's o and economic operation of the planti includding the cavity wall does more is an active tool in preventing spoilin carry out their tasks. It would be c. industry and quite useless to any buy tiling are essential in preserving the w till from its foundation as it is to sep The drains do not just remove the wa would disrupt the process as much liquids were left uncovered in the bui quickly become unworkable. I think as a single unit of plant and not a coll of which is to be separately examined whole in which every piece is essent would, however, except from the des the external 'cladding' of the dyehous
50

) S.T.C. 683, Stephenson L.J. considered the
or a limit, to such litigation by defining plant, redefinitions multiply, the less enviable grows of reported cases' crossing the border into earch for guidance, they find plant in the most g pool, from a dry dock to a mural decoration. supported by cogent reasoning, they may be ything, to be or not to be plant and may be iny number, of inconsistent concessions and tesman, Balfour, is reported to have said it is e, like an elephant, you recognized it when you
portance and this is notwithstanding that Some y and not actively.
v.FCofT69 ATC4095itwasheldthebuilding d roof, constituted plant. Taxpayer carried on rn. The dyeing house was specifically designed ondensation of steam from the hot dyes, orrosion caused by, and drainage of, the dye.
2house is 'in the nature of a tool" in the trade and facturing process. It is much more than a perations. It is an essential part of the efficient ff's business. The complex Ventilation system than merely clean the atmosphere. Its structure g of material, and in enabling the operatives to ompletely unnecessary in almost every other
er except a dyer. The protective coatings and hole 'tool'. It is an unreal to dissect the paint or rate the paint from a workman's tool of trade. ste liquids, they remove volatile liquids which is vapours escaping from the vats. If boiling
lding, in vats or drains the whole process would herefore that the dyehouse should be regarded ection of bricks, mortar, paint timber, etc. each It is not merely aspecial factory; it is a complex ial for the efficient operation of the whole. I
cription of plant' what might be referred to as e, that is the external walls including the single

Page 61
walls at the east and West ends and the 1 controlled louvres or the cowlings in the than exclude the elements and Whilst distinction nevertheless, it is clearly su question".
In a more recent UK case, IRC v. Scottis 296), the House of Lords held that the ( function Of the trade of a hotelier and W. a trade. In this case, electric light fittir apparatus of the trade and qualified as
In the case of CIT v Tajmahal Hotel observed:- "Now it is well Settled that where the def construed in its popular sense if it is a w that sense which people conversant with is dealing, would attribute to it'...."
In this case, the Court considered the ful performed in a hotel and observed
"If partitions in Jarrold's case (40 TC. 68 the purpose of the best of the trade, its is be said to have no connection with the b how the sanitary fittings in the bathroon
In a recent Indian case (Commissioner of Storage, 100I.T.R. 155) the meaning of p in this case that "plant" includes within manufacturing purposes. In this case the walls, which was used as a freezing c building was part of the airconditioning qualified for capital allowances, H.N. S.
"In common parlance the word and equipment used for manufactu the members of the Tribunal it is C be a part of the air-conditioning pl the word is understood in common Act, 1961, gives an inclusive defin
"Plant" includes ships, vehicles, equipment used for the purposes
51

Oof as distinct from the ceiling, but not the roof. The cladding really does nothing more I am not convinced of the validity of this
ported by prior decisions on this sort of
h & Newcastle Breweries Ltd. (1982) SCT 'reation of atmosphere was an important S a means to an end in the carrying on Such gs, decor and murals were regarded as lant for capital allowance purposes.
(82 ITR 44) the Supreme court of India
inition of a word has to be given, it must be ord of everyday use. Popular sense means the subject matter with which the Statute
nctions which sanitary and pipeline fittings
1) could be treated as having been used for incomperhensible how sanitary fittings can usiness of a hotelier. We are unable to see n of a hotel will not be plant'....
Income Tax, Lucknow v. Kanodia Cold lant was given a new dimension. It was held its ambit builings and equipments used for : taxpayer had a building, with insulated hamber. The taxpayer maintained that this plant of the cold storage and consequently eth J. in his judgment said
blant' includes within its ambit buildings ring purposes. On the observation made by bvious that the building in question would ant of the cold storage, in the sense in which parlance. Section 43 (3) of the Income Tax ition of the expession plant' in these words:
looks, scientific apparatus and surgical of business or profession'.

Page 62
This indicates that the legislature intenc meaning which went even beyond thatc. did not intend to exclude from its annbi in it. Viewed in this light, the building it for air-conditioning the assessee's colds to claim depreciation with regard to it a
The above case establishes that although within the ordinary meaning of the term and plant and machinery are not mutual
It was held in 2 Indian cases, one decidec by the Madras High Court that the repla with diesel engines amounts to the insta vMir Mohamed Ali (1964),53ITR 165(
In the words of Taylor J. in Quarries Ltd. 106 CLR 310 at p. 315, in Review of El
"But valuable as such casas may b question of what may or may not they demonstrate the impossibilit application of which the-problem
A large number of English and Indian ( of the word "plant' and some of them : deciding any questions that may arise:
IS PLANT
Horse
KniveS and lasts used in the manufacture of shoes Designs and Blueprints (drawings, plans and technical data) Movable office partitions
Wells
Concrete dry dock
Electric fans and Other appliances Poles, cables, conductors and
Switch boards for distribution of electricity
52

led to give to the word plant' and extended onveyed by it in common parlance. It surely t things which would normally be included h question would be a part of the plant used storage and the assessee would be entitled t 15% on its written down Value".
, as a prima facie rule, buildings are not plant l, it is accepted that buildings and structure ly exclusive concepts.
by the Supreme Court of India and another cement of petrol engines of motor vehicles llation of new plant. The cases are (a) CIT SC)(b(Raju and Mannar (1963) 50ITR202.
v. Fedral Commissioner of Taxation (1961) nglish decisions on the meaning of plant'-
be, as a general guide, when considering the be regarded as plant in any particular case y of formulating any precise rule by the 1 may always be readily solved"
cases have had a bearing on the meaning are given below which may be a guide in
Yarmoth v France (1889) 19QB 647) Hinton V. Maden & Ireland Ltd. (38 TC 391) Nippon Electronic (P) Ltd v CIT (1979) 116 ITR 231) Jarrold v John Good & Sons (40 Tc 681) CIT v warner Hindustan Ltd. (1979 ITR 15) Inland Revenue Comm v Barclay Curle & Co. (45 TC 222) Sundaram Motors v CIT (71 ITR 587)
CITV Indian Turpentine and Rosin Co Ltd (75 ITR 533)

Page 63
+ Light fittings, ceiling and pedes
tal fans and water pipe fittings in hotels
+ Dockside silos
+ Swimming pools
+ Sanitary and pipeline fittings
in a hotel
+ Law Library
+ Decor, light fittings, murals,
plaques, tapestries, pictures and metal sculptures to create an atmosphere for hotel quests
+ Decorative Screens installed in
windows by building societies to attract CuStOmerS.
+ Documentation service comprisi drawing, designs, plans, process data etc.
IS NOT PLANT
+ Horse
+ Stallion (used to Serve mares)
- Bed of river
- Water tower
+ Electric lamps and fittings in a
tea shop
+ Human body
+ Wallpaper pattern books
+ Ship used as floating restuarant
+ Designs for wallpaper and
furnishing fabrics
+ Water storage tank used for
storing water
+ Gymnasiums
+ Conopy over garage service
3TՇգ
+ False celings installed in
reStaurant
53

ng ing
CIT v Jagadeeschandran & Co. (75 ITR 697)
Schofield v R & H Hall Ltd. (49 TC 538)
Cooke v Beach Station Caravans Ltd. (49 TC 514) CIT v Taj Mahal Hotel (82 ITR 44)
Munby v Furllong (1977) STC (252)
IRC v Scottish & Newcastle Breweires (1982) STC 296)
Leeds Permanent Building Society v Proctor (1982) STC 821)
Scientific Engineering House Pty
Ltd v CIT (1986) 157 ITR 86
London & Eastern Counties Loan & Discount Co v Creasy (1987 1 QB 442) Earl of Derby v Alymer (6 TC 665) Dumbarton Harbour Board v Cox
(7TC 147)
Margrett v Lowestoft Water & Gas Co., (19 TC 481) J Lyon & Co Ltd v Attorney General (1994) 1 Ch 281) Norman v Golder (26 TC 293) Rose & Co Ltd v Campbell (44TC 500) Benson v Yard Arm Club Ltd. (1979) STC 266 McVeigh v Arthur Sanderson and Sons Ltd. (45 ITR 1160) Jayasingrao Piraji Rao Ghatgev CIT (46 ITR 1160)
St John's School v Ward
(49 TC 524) Dixon's Fitch Garage Ltd. (1975) STC 480 - JW Hampton (HMIT) v Fortes Autogrill Ltd (1980 STC 80)

Page 64
The cost of acquisition of plant, machinery or fixtu
(a)
(b)
any expenditure incurred in the instal
any expenditures incurred in connecti old machinery.
2. Special Cases
(a)
(b)
Machinery bouth on hire-purchase
The allowance is granted to a purcha he is the de-facto owner
Machinery hired to users:
Where a business consists ofhiring pla be treated as being used by the owner allowance is therefore granted to the
The allowance is, however, not due where plant or
(aa) to any undertaking the whole or part of the
(bb) for use in any undertaking carried on by
(i) (ii) (iii)
(c)
(d)
(e)
the person from whom such plant or any member of the family of that per any member of his family in partners
Hire of machinery for a short perio
Where the owner of any plant or mach it again in his business, the allowance basis for the period during which it
Plantormachinery provided by ane
The allowance for depreciation or rent equipment or articles provided by the his residence.
Machinery used in partnership wit
The allowance is not due where plant
the owner in partnership with the per of the family of that person,
5

res will include
lation of plant, machinery or fixtures, and
on with such installation in dismantling and re-erecting
er of plant, machinery or fixtures of hire-purchase as
intor machinery to users, such plant or machinery will in his business of hiring plant or machinery. The owner of such plant or machinery.
machinery is let on hire
profits of which are exempt from tax;
machinery was acquired. SOn, Or hip with another.
od:
inery hires it for a short period and Subsequently uses for depreciation will be granted on a proportionate is used by him.
mployer for the use ofanemployeeinhis residence
wal is not due in respect of plant, machinery, fixtures employer for the use of any employee in the place of
(section 24(2)(b)) h former owners:
or machinery is used in an undertaking carried on by on from whom it was acquired or with any member

Page 65
(f)
(g)
(h)
(i)
Vehicles used for travelling:
The allowance is not due on vehicles use in respect of
(i) motor cycles or bicycles used by (ii) motor coaches used for the transp
WOrk
Vehicles used for transport such as lorri
Fixtures:
As a general rule only fixtures that are p allowance. In practice, however, the allo
(i) metal filing cabinets. (ii) metal safes. (ii) metal furniture.
Improvements: Improvements effected to any plant, mach has been granted will also qualify for the
Rates of Depreciation.
(i). Plant, Machinery and Fixtures.
Plant, machinery and fixtures (oth sub-paragraph (ii) below) the rate
(ii) Motor Vehicles, LOrries, Buses, T
Where the above-mentioned were per annum of the cost of acquisiti April, 1993, the rate is 16 2/3% pe (eee) (ii)).
Buildings constructed or Acquirec
An allowance for depreciation is u: and that too only in respect of cer buildings". The reason behind th be constructed by persons carryin, persons carrying the Act in 198 person who purchases any un condominium property registerec
55

d for travelling. An exception, is however, made
non-executive Officer. ortation of employees to and from, their place of
(section 24(2)(a)) 's, vans etc. qualify for the allowance.
ermanently attached to a building qualify for the wance is granted in respect of
inery or fixtures in respectof which the allowance
allowance,
er than plant, machinery or fixtures referred to in is 33% per annum of the cost of acquisition.
ractors, Trailers or Office furniture.
acquired before 1st April, 1993, the rate is 25% on. Where these articles were acquired after 1st
annum of the cost of acquisition. (Section 23(i)
ually granted in respect of buildings constructed ain buildings described in the Act as "qualified S is to encourage age more new buildings to on a trade or business. to be constructed by by which depreciation was also granted to a t of non-residential accommodation in a under the Apartment Ownership Law No. 11

Page 66
(i)
(ii)
(ii)
(iii)
(iv)
of 1973 anduses Such a unit in the tra by him.
The allowance for depreciation is nov the relevant year on the following:-
Any building constructed by a pers profession or vacation carried on by buildings used as dwelling houses
Any unit acquired by a person in a Apartment Ownership Law No. 11 of
of accommodation and should be use carried on by Such person.
The prescribed rates depreciation ar.
10% per annum of the cost of constr prior to 1st April, 1993
62/3% per annum if the cost of const after 1st April, 1993.
10% per annum of the costofacquisit where it was acquired prior to 1st A
62/3% per annum of the costofacquisi where it was acquired after 1st after
56

de, business, profession or vocation carried on
wgranted at the prescribed rate applicable for
on for the purpose of any trade, business, such person. The allowance is not granted to by an executive officer.
condominium property registered under the 1973. The unit should be a non-residential unit d in the trade, business, profession or vocation
a
uction where the construction was completed
ruction where the construction was completed
ion of a unit of non-residential accommodation pril, 1993.
tions of a unit Of non-residential accommodation 1st April, 1993.

Page 67
CHAPTE
ASCERTAINMENT OF TOTA
Statutory Income
The statutory income of a person from a sourc derived by him or arose or accrued to his
assessments. For the year of assessment 1992/9 income from each source for thc period 1.4.9.
Accounting Date
(1) Every person who carries on or exerci is required to make up the accounts of each successive period of 12 months c Where a business commences in an yea pcriod from the date of commencem a SSCSS ment. Where abusiness ceases in any yearofa from the date of commencement of tha business,
(2) Any person whois unable to makeup t above is required to give notice in wr reasons for his inability to do so. The Col to make the accounts for some others
Note:
(i) Section 25(3) is intended to cover spec international companics where itis des branches and subsidiaries to a date oth
(ii) Even though accounts maybe closed to ; will be profits for the current year er apportioned for this purpose. In certa operative societies the Commissioner G be used for computing statutory incom Commissioner General may vary or re
Change of Accounting year
Every person who carries on a trade, business to make up accounts to 31st March of each year
57

R 8
STATUTORY INCOME
2 of income is the profits or income which were benefit from that source during that year of 3the statutory income of aperson is the statutory 2 to 31.3.93 - Section 25(1).
ses any trade, business, profession or vocation that trade, business, profession or vocation for inding on 31 March each year.
ir of assessment, accounts must be made for the 2nt of the business to the end of that year of
ssessment, accounts must be made for the period it year of assessment to date of cessation of the
(section 25(2))
ne accounts in the manner described in para (1) iting to the Commissioner General stating the mmissioner General may then direct that person }ecified periods.
(section 25(3))
ial cases such as branches and subsidiaries of irable for the company to close accounts of its er than 3l March.
date other than 31 March, the statutory income lding 31 March. The profits may have to be in exceptional cases such as banks and coeneral has directed that the accounting year may in place of the year ending on 31 March. The voke such a direction.
profession or vocation is required by the Act Where, however, for good reasons, any person

Page 68
is unable to comply with this requirement, ti direct that the accounts may be made up to a ( be made up to a day other than 31st March, year on the profits from list April to the 31st by apportioning the profit of two consecuti
In terms of Section 25(1A) of the Act wher 31st March, the Commissioner General may the profits of the accounting year ending int of the year.
Example: Millgills Ltd. keeps accounts u Profits for Y/E 31.1289
Profits for Y/E 31.1288 Profits for Y/E 31.12.87
Statutory Income for 1987/88 is computed as Statutory Income 1987/88 =3儿
Statutory Income 1988/89 - R
Further, where in a tax year the taxpayer fail statutory income of the tax year in which suc computed on such basis as the Commission
58

Le Commissioner General of Inland Revenue may lay other than 31st March. Although accounts may the statutory income must be computed for each March of the following year. This is usually done fe years of accounts.
(Section 25(3))
e a person keeps his accounts to a day other than direct that for the tax year or any subsequent year, he tax yearshall be treated as the statutory income
) to 31st Dec. each year
Rs. 300,000 Rs... 200,000 Rs... 150,000
below:
(4 (Profits of Y/E 31.12.87) /4 Profits of Y/E 31.288
/4 x 150,000 + 1/4 x 200,000 12,500 + 50,000
62,500
s. 200,000
sto make up the accounts to the day permitted, the h failure occurs and of the next two years shall be er Gcneral considers just and equitable.

Page 69
CHAPTE
ASCERTAINMENT ( INCOM
9. Assessable income
The assessable income of a person for an year year subject to the deductions specified hereun
Annuity, ground rent, royalty or interest
(l)
(2)
(3)
Sums payable by way of annuity, groundr 23 during an year of assessment are dedu of assessment Where the total of such su total statutory income of that year, the ex that year.
No deduction is allowable in respect ofs another person out of Sri Lanka.
A deduction may be refused in respect of such sum is subsequently paid and a clain thereof, the assessment will be rcvised inc refund of tax arising will also be made no
Note:
(i) Interest
In calculating the statutory incom under section 23 only for interest total statutory income is compute incurred in the production of in consumer goods.
Interest on estate duty is also allo
(ii) Annuity
An annuity is a fixed sumpayable payment of an annuity which she periodic instalments. An annuit maintenance. An annuity created the total statutory income if it is .
59

R 9
DF ASSESSABLE
E
Section 29
of assessment is his total statutory income for that der.
(section 29(1))
2nt, royalty or interest not deductible undersection ctible from the total statutory income of that year ms payable for an year of assessment exceeds the ccess is treated as a loss incurred in a trade during
uch sums payable by a person out of Sri Lanka to
any such sum payable which had not been paid. If n is made in writing by the taxpayer within a year twithstanding the provisions of section l23. Any ptwithstanding the provisions of section la9.
e from a source of income a deduction is allowed
incurred in the production of income. After the d, a deduction is allowed for interest which is not come. eg. interest on loans for the purchase of
wable as a deduction.
annually which bears the character of income. The uld be made with reference to an year may be in y includes sums paid by way of alimony and prior to ls.ll.84 will qualify for deduction from

Page 70
(a) for a period exceeding 6 (b) for valuable and sufficien
a period not exceeding 6 (c) for the life of the annuita
However an annuity created or it is -
(a) paid under an order of co (b) to a spouse under a duly (c) in return for full consider
(iii) Ground Rent
Ground rent is a payment made of statutory income from rents for repairs are deducted. Grour
(iv) . Royalty
Royalty includes payments ma rights. The payment varies wit
9.3 Losses
(1)
(2)
(3)
(4)
A loss incurred by a person in trade, bus
that, if instead of the loss there was a p
A loss incurred during an year of assess that year.
If the loss exceeds the total statutory inc set-off against the total statutory incom
A company whose control changes hanc than by way of testate orintestate succe incurred prior to the change of owner
statutory income of such trade or busi incurred.
The amount of a loss is ascertained in the of profits.
60

years, or t consideration, in the case of an annuity payable for
years, or
lt.
or after 15, 11.84 will qualify for deduction only if
urt as alimony or maintenance; or 2xecuted deed of separation; or
ation in money or money's worth.
: for the right to build on land. In the dctermination of immovable property only rates and an allowance ld rent is deductible from the total statutory income.
lde for the use of trade marks, patents and certain n the extent of the use of the property.
(section 29 (2)(a))
iness, profession or vocation is deductible provided rofit, such profit would have been assessable.
ment is deductible from the total statutory income of
ome of that year, the excess is carried forward to be e of the next year and so on.
(section 29 (2)(b))
ls due to a change of ownership of shares, otherwise ssion, is precluded from claiming a set off of losses, ship, against any statutory income other than the less of the company as that in which the loss was
(section 29 (2) (b) (iiii))
same manner provided in the Act for ascertainment
(section 29 (9))

Page 71
(6)
(7)
(8)
(9)
A loss may be carried back for three ye; vocation - see para 9.4.
Capital losses - see para 7.07 of Chapter
Losses from the racing of horses - see pi
Losses of undertaking entitled to tax hol
4 Carry back of losses
(1)
(2)
(3)
(4)
(5)
(6)
Section 29 (5) provides for a carry back c business, profession or vocation. Any lo vocation may be set off against the totals the loss was incurred and the balance los income of the preceding year, and so on, assessment preceding that in which the
The losses for which this relief is availabl cessation occured and the losses of each
This section has no application to capital
Any loss incurred in an year of assessme
* first from the total statutory income of
* next form the total statutory income o
recession.
The application of this section arises, on
If the entire loss cannot be carriedback-w off against the income (from any others
Section 29 (5) does not override the provis the provisions of Section 123 (finally of
Example:
Banda ceased to carry on his business on 30.06 of the period 1.04.92 to 30.06.92 and Rs. 140,0( total statutory income was .
y/a 1992/93 y/a 1991/92 y/a 1990/91 y/a 1989/90
61

irs on cessation of a trade, business, profession or
7.
ra 9.6.
days - see para 9.5.
flosses Where a person ceases to carry on a trade, ss incurred in such trade, business, profession or tatutory income of the year of assessment in which is, if any, may be set-off against the total statutory but such carry back is limited to the three years of cessation occurred.
e will be losses of the year of assesssment in which of the two preceding years of assessment.
losses or to losses from the racing of horses.
int should be deducted
that year of assessment, f the year immediately preceding, etc. in order of
ly if a request is made for it by the taxpayer.
ard, the balance loss can be carried forward and setource) of the subsequent years.
ions of Section 149 (refunds) although it overrides an assessment).
1992. He incurred a loss of Rs. 130,000 in respect )0 in respect of the period l.04.9l to 31.03.92. His
RS. 80,000 Rs. 90,000 Rs. 60,000
Rs. 75,000

Page 72
The assessable income will be as follows :
Y/a SS6SS
1992/93 Ni (80,00 1991/92 Ni (90,00 1990/91 Nil (60.00 1989/90 30,5000 (75.00
If the loss in respect of the period 01.04.92. -3C
they/a 1989/90 too will be nil, and the unabsorbs statutory income for the yia 1993/94.
9.5 Losses of tax holiday undertakings
(1)
(2)
A loss is generally dcductible from the tot thcre was a profit, such profit would havi necessary to deal with losses incurred in t holiday. These are provided by sections For the purpose of dealing with losses, t categories :
(a) Those entitled to a total tax holid 17D, 17E, 17G, 17H, 19, 22A, 2
(b) Those entitled to a partial tax hol
Losses of undertakings entitled to a total to 17C, 17D, 17E, 17G, 17H, 19, 22A, 22E
(a) A loss incurred in an year of as: deducted from the total statutory for an year of assessment in whi
(b) A deduction is allowed in the fir undertaking become liable to inc
Losses incurred in any year of a during the tax less holiday perio
(c) Where the deduction for the first of that year, the excess is carri income of subsequent years.
62

able income c/b loss
Rs. Rs. 0-270,000) 190,000 0-190,000) 100,000 0-100,000) 40,000 0- 40,000)
).06.92 was Rs. 180,000, the assessable income for 2d loss of Rs. 5,000 may be set-off against his total
alstatutory income only when, if instead of the loss e been assessable. Special provisions are therefore axholiday undertakings during their periods of tax 29 (3), 29 (4) and 29 (4A).
ax holiday undertakings may be divided into two
lay under the section 16, 16A, 7, 17A, 7B. 17C, 2B, 22C, 22D, 22DD, 22DDD, or 22DDDD
iday under the sections 16B, 20, 20A, 20B or 20O.
Exholiday under the section 16, 16A, 17, 17A, 17B, , 22C, 22D, 22DD, 22DDD or 22DDDD.
sessment during the tax holiday period cannot be income of the person carrying on that undertaking ch the tax holiday prevails.
st year of assessment for which the profits of that :ome tax as follows:
ssessment Exempt profits of the undertaking
d. forany year of assessmentsubsequent to the year of assessment in which a loss was incurred.
year of liability exceeds the total statutory income ed forward and deducted from the total statutory
(sections 29 (3), 29 (4)(b) & (c))

Page 73
Example :
XLtd. was entitled to a taxholid income was as follows :
Period
14.87 - 31.388
14.88 - 33.89
1.4.89 - 31.3.90
14.90 - 31.3.9
4.91 - 31.3.92
14.92 - 3.5.92
16.92 - 31.393
The assessable income of the company
y/a
1987/88.
1988/89.
1989/90.
1990/91.
1991/92.
1992/93 Total statutory income
Less : losses
Less : profits
(3) Losses of undertakings entitled to a parti,
20C
(a)
A tax holiday under section 20, 2 the total profits of the undertakin is equal to (exportturnover): (tota of new bedrooms): (total no. of
This fraction is used to apportion tax holiday period into two parts deductible from the total statutory for that year of assessment. Any off against his total statutory inco is not deductible from the person' falling within the tax holiday pe
63

ly under Section 17A from 01.06.87-31.05.92. Its
Exempt Liable Interest profits profits income Rs. Rs. Rs.
100,000 (loss) 20,000 80,000 (loss) 20,000 20,000 25,000 40,000 30,000 30,000 (loss) 30,000 20,000 5,000 150,000 25,000
for each year is as follows:
Rs. RS. Rs. 20,000
20,000
25,000
30,000
30,000
180,000 210,000
80,000 130,000 50,000
al tax holiday under section 16B, 20, 20A, 20B or
0A, 20B, 20O or 16B applies only to a fraction of g. In the case of 20, 20A, 20B, or 20O the fraction l turnover). In the latter the fraction is equal to (no. pedrooms).
a loss incurred in anyear of assessment during the . That part which corresponds to liable profits is income of the person carrying on that undertaking unabsorbed part of it is carried forward to be setme of subsequent years. The other part of the loss
total statutory income for any year of assessment od.

Page 74
(b) For the first year of assessmentin whi
in respect of
Losses incurred in any year of assess during the tax holiday period.
(c) When the deduction for that first year of that year, the excess is carried fo) income of subsequent years.
Example :
A person entitled to exemption und undertaking carried on by it in the ye information and the manner of compl
Year Total Export ended Profits Turnover
Total
Turnover
Rs.
33.87 500,000 3/5
313.88 400,000 1/2 313.89 (400,000) 1/4 313.90 200,000 1/2
31.391 (300,000) 2/3 33.92 200,000
The tax holiday ends on 31.3.1991 YIA 1991/92
Total statutory income ... ... Losses incurred during the tax holidayperiod
64

chthe taxholiday ends, a deduction is allowed
ment
Losses set-off against his total
statutory income for any year of assessment prior to that first year of assessment.
Exempt profits of the undertaking forany year assessment subsequent to the year of assessment in which
the loss was incurred.
of liability exceeds the total statutory income rward to be set-off against his total statutory
(section 29 (4A))
er section 20A made its first profits of the ar of assessment 1986/87. The other relevant utation of its assesable income are as follows:
Exempt profits
Rs.
300,000 200,000 (100,000) 100,000
(200,000) (100,0000)
Liable
profits
RS.
200,000
200,000 (300,000) 100,000
200,000
Other
іпсоте
Rs.
20,000 10,000
60,000 30,000
20,000 20,000
Assess
able
ітсоте
Rs.
220,000
210,000
RS. 220,000

Page 75
Y/A 1988/89
Y/A 1990/9 Losses set off against the total statu income prior to Y/A 91/92 Y/A 1988/89 Y/A 1989/90 Y/A 1990.91 Exempt profits of subsequent periods Y/A 1989/90 Loss to be C/F
Losses from the racing of horses
A loss incurred from the racing of horses is dedi if such income includes profits from the busines profits. Any unabsorbed loss is carried forward a subsequent year which includes such profits.
Aggregation of losses
Where the total statutory income of a child foran
to be apart of the total statutory income of a pare of the child are deducted from that of the paren
65

400,000 300,000 700,000 ory
60,000 130,000 20,000 210,000
100,000 310,000 390,000
1ctible from a person's total statutory income only S of racing of horses and only to the extent of such to be set-off against the total statutory income of
(section 29 (7))
year of assessment is aggregated with, and deemed nt, any sums deductible from total statutory income t.
(section 29 (10))

Page 76
10.1
CHAP
ASCERTANMENTC
Taxable Income
Chapter VII of the Act deals with th contains two sections - Section 30 & s sections are made from the assessable i 30 deals with the tax free allowances gi taxable income. The allowance applic below:-
i Year of Assessment 1991/92 ii. Years of Assessment 1992/93 & ]
iii. Year of Assessment 1994/95
Trustees, Receivers, Executors and Liquidators,
30).
10.2
0.2.1
Qualifying Payments.
General
From 1979 the Government of Sri La individuals, companies and others gra computing the taxable income. The lav undergone several changes.
The deduction under the head qualifying paym
(a)
(b)
Companies
Deduction is limited to 1/3rd of the ass enumerated in paras 10.3. l. 10.3.2, 10. in paras 10.3.3, 10.3.4, 10.3.5, 10.3.7
qualifying payments enumerated in pa subject to the limit of l/3rd of the asse
Persons other than Companies
Deduction in respect of qualifying paym to 1/3rd of assessable income or Rs. 50

TER 10)
DFTAXABLE INCOME,
e ascertainment of taxable income. This chapter cction 31. The deductions permitted by these two income in ascertaining the taxable income. Section anted to resident individuals in the computation of able to the different years of assessment are give
- Rs. 27,00 1993/94
- Rs 42,000
- Rs 42,000
are not entitled to this tax free allowance. - (Section
Inka with a view to encouraging investments by inted a deduction called “Qualifying Payment in v with regard to the deduction under this head has
ent is set out below:
essable income in respect of qualifying payments 3.6 and 10.3.13. Qualifying payments enumerated and l0.3.8 are not applicable to companies. The uras 10.39, 10.3.10, 10,3. ll and l0.3, 12 are not ssable income.
entsenumeratedin paras 10.2. lto 10.3.8islimited ,000/= whichever is lower, and the total deduction
66

Page 77
().3.1
: Դ 3.2
in respect of all qualifying payments ref should not exceed Rs. 50,000/=.
Deduction is respect of any qualifying pi 1/3rd of thc assessable income. There i payment on account of donations to the G or fund - para 10.39 (Sections 3 l(50, 3 li
Donations to an approved charity or a
(1) A donation made by a person in mol
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
an approved charity, C.I.S.I.R., Sri Lanka Foundation; Tower Hall Theatre Foundatio Sri Lanka Investors’ Commiss
S. W. R. D. Bandaranalike Nati
Institute of Fundamental Studi International Winged Bean (D. Sri Lanka Institute of Printing; Arthur C. Clarke centre for Mc (Section 31 (2)(a), 31(2)(k))
(2) An approved charity is a public ch: such by the Minister by notice pub
(3) A donation is treated as a qualifyin approval of the charity. Where app
49.
(4) The Assessor should satisfy himse appropriate cases he should call fo
Purchase of ordinary shares in an app
(l) The amount invested by a person in undertaking other than an approve qualifying payment, if the shares when the shares are allotted by the
67

rred to in paras 10.3.10, 10.3.1l and 10.3.12
yment referred to in para 10.3.13 is limited to ; no limitation in the deduction of qualifying vernment of Sri Lanka ora specified institution 5A), 31(5B) and 31(5D).
specified institution
Ley to
n, ton; onal Memorial Foundation; es, Sri Lanka;
ambala) Institute,
bdern Technologies is a qualifying payment.
aritable trust or institution which is declared as lished in the Gazette.
(section 31 (9)(a))
g payment even if it was made prior to the ropriate, a claim has to be made under section
f that the donations were in fact made. In
thc receipts.
oved under taking
the purchase of ordinary shares in an approved d undertaking referred to in para l0.3.13 is a re purchased, directly from the company. i.e. company to the investor.
(section 31(2)(d))

Page 78
(2) An approved undertaking in a comp
(i) which is engaged solely in
(a)
(b)
(c)
(d)
(e)
(f)
carrying on an undertaking commodities or of providing
the construction and sale of
the development and sale of poses under any scheme appr services for payment in fore
the construction and sale ofh for building purposes under a of the subject of Housing:
carrying on an industrial und goods or commodities being
(i) Commences its produ specified as an area of
published in the Gaz (ii) employs more than 25
carrying on an undertaking essential for the economic pr the Minister by notice publi:
(ii) which is approved by the Minister b
1, 1992.
A company which has been apprc Commission(BOI) prior to April 1, 1 entered into, inconsequence of such app Colombo Economic Commission unde Commission Law, No 4 of 1978, is als
(3) (a) The notice specifies the period period is generally five years f the company.
(b) An investment made in an appr payment even if it was made
appropriate a claim has to be m
68

any
, which is capable of exporting goods or
services for payment in foreign currency;
OuSeS.
houses; bved by the Minister in charge of the providing ign currency,
ouses and in the development and sale of land ny scheme approved by the Ministerin charge
artaking for the production or manufacture of an undertaking which
iction or manufacture in an area which is high unemployment by the Minister by notice
ette, and
persons; or
which is considered by the Minister to be ogress of Sri Lanka. and which is approved by shed in the Gazette. and
y notice published in the gazette prior to April
ved by the Greater Colombo Economic 992 and with which an agreement has been roval prior to September 1, 1992 by the Greater Section l7 of the Greater Colombo Economic
o an approved undertaking.
(section 31 (9)(b))
for which the approval is granted. This rom the date of the first issue of shares by
oved undertaking is treated as a qualifying prior to the approval of the company Where ade under section 149.

Page 79
(4)
The Assessor should satisfy him appropriate cases he should call f
10.3.3 Payment made by individuals for hous,
(l)
(a)
ii.
(b)
Certain payments made by an il payments. These are:
The payment of capital of any loa 31.3, 1989 from the government, : approvcd by the Minister in charg
the construction of a house,
the purchase of either the fir: house purchased on or after
The payment of capital of any loa 1994 from the Government, a ba approved by the Minister in charg
(i) the construction of a house a
first house constructed on or
(ii) the purchase of either the fir
house, at a cost not exceedin;
Note that
(i) Only the amount repaid as capita ensure that a deduction is not allc
(ii) Loans may be taken for the const
(iii) In the case of the purchase of a h purchase of the first house pur. deduction. The purchaser may ha date. He will nevertheless qualify of the first house on or astcr that
(iv) The requirements relating to a loal
to a loan taken for the purchase l.4.1973. A deduction cannot be purchase a house as well as for al
claim a deduction either on the lo block.

self that the shares were in fact purchased. In or the share certificates.
ng
dividual in relation to housing are qualifying
n obtained on or after 1.4.1973 but on or before bank a local authority or from other institution ge of the subject of Housing for
O
thouse or the first site for the construction of a
4.1973.
n obtained on or after 1.4.1989, but prior to 1.4. nk, a local authority or from other institution ge of the subject of Housing for
t a cost not exceeding Rs. 1,000,000 being the after 14.978 or
st house or the first site for the construction of a g Rs. 1,00.00., purchased on or after 1.4.1978
(section 3 l (2)(ee))
l qualifies for deduction. Care must be taken to wed on the total of capital and interest repaid.
ruction of any number of houses.
ouse. only the repayment of a loan taken for the hased on or after 1.4.1973, will qualify for ve already been the owner of a house before that for the deduction on a loan taken for the purchase date
for the purchase of the first house apply equally of the first building site purchased on or after : claimed by an individual for a loan taken to pan taken to purchase a building block. He could an for the house or on the loan for the building

Page 80
(v)
(vi)
(c)
(d)
(e)
(f)
(h)
(i)
The repayment will qualify for dedu owner of the house or building bloc However, if a parent gifts a house or the parent was entitled to qualifyi continue the entitlement so long as th is aggregated with the parent.
in the case of a joint purchase of a and wife each spouse is entitled to ( loan taken by that spouse and used
The monthly payment made to the go institution approved by the Minister of any house let on or after 1.4.1973
the monthly payments made to the g institution approved by the Minister of any rent purchase agreement, the 1,000,000 entered into, on or after l. first house purchased on or after 1.4
Any amount spent on the constructio expenditure is not met out of borrow individual may construct more than
Any amount spent on or after 1.4.198 the first house, constructed on or
l,000,000, where such expenditure referred to in para (b)
Any amount spent for the purchase c of either the first house or the first sit or after 1.04 1978, where such exp sources referred to in para(a).
Any amount spent by an individu accommodation constructed with the and forming part of a registered con
(i) the lease is for more thar
70

ction only so long as the claimant remains the k.
a building block to a child, in respect of which ng payment relief, he or she is permitted to e child is under 18 years of age and the income
puilding block or a house by the husband slaim a deduction on the repayment of the for that purpose.
(section 31(2)(e)(i))
vernment, a bank, a local authority or to other
in charge of the subject of Housing, in respect
, on rent-purchase terms.
(section 3 l (2)(e) (ii)
overnment, a bank, local authority or to other in-charge of the subject of Housing, in terms ; consideration of which does not exceed Rs. 4. 1989 but prior to 1.4.1994, in respect of the
1978 on rent purchase terms
(section 3 l (2)(ee) (ii)
n of a house on or before 31.3.89, where such vings from sources referred to in para (a) An one house.
(section 31(2)(f)
9, but prior to 1.4.1994 on the construction of after 14, 1978 at a cost not exceeding Rs. is not met out of borrowings from sources
(section3 l (2)(ff)
on or after 1.04.1978 but on or before 33.89 e for the construction or a house purchased on cnditure is not met out of borrowings from
(section 31 (2) (g))
all on the lease of any unit of residential approval of the Urban Development Authority dominum property, if
50 years and

Page 81
(ii) the full consideration for such l time the lease agreement was
Such a lease of property is treated a sections 31(2)(e),31 (2)(g) and 31 (. of the lease agreement should note
(2) Spreadover of certain qualifying payr
The expenditure referred to in para (l
between the year of assessment in whi
(a) The total amount spent by an in house, for the purchase of a site apportioned between not more t
(b) The assessee could apportion th relief-the apportionment need ni
(c) No deduction can be claimed fo
(i) the individual remained that year of assessmcnt,
(ii) the owner of the house o
age, who has acquired is aggregated with that ir
(3) Evidence of the money spent on the
The following documents may be pe
(a) the certificate of conformity iss (b) the copy of the approved plan o (c) the bill of quantities and estima
It is not necessary for the Commissio construction of the house.
(4) Transactions in which both spouses p
(a) Purchase of a house or a buildi In the case of joint purchase of a wife, each spouse identitled to that spouse.
71

ase was paid prior to 1.4.94 at the :ntered into.
a “purchase' of property for the purposes of ) With effect from 14, 1989 the consideration ceed Rs. 1 million.
ents
(c), (1)(d) or (1)(e) may be apportioned ch it was expended and the next 14 years.
lividual on the purchase or construction of a for the construction of a house, can be han 15 years of assessment.
2 expenditure so as to obtain the maximum ot be made equally over the 15 years.
ran year of assessment unless
the owner of the house or building block in O
r building block is a child under 18 years of same by way of gift and whose income dividual.
(section 31(3))
construction of a house.
rused:
lued by the local authority; f the house; and
es of the cost of construction.
her for National Housing to certify the cost of
articipate
g blockhouse or a bildding block by the husband and laim a deduction of the investment made by

Page 82
(b) Construction of a house
Where a house is construct( entitled to a deduction on th Where a house is constructe deduction is granted in the expenditure. Such expenditu as that spouse is not the ow
l0.3.4. Insurance premia and provident fund
(2)
(l) The following payments ma
(a) Premia paid prior to
issued outside Sri Lal
(i) life insurance p respect of whi annual preima
(ii) annuity policy c
than five years.
(iii) medical insuran
(b) premia paid prior to l.4 199 commotion (not being prem
(c) contributions to an approve
provident fund, if the pro from income tax,
(d) contributions to an approve
(a) The individual who pays th
(b) Where an employer pays th to the deduction. The premia income.
(c) Premia paid in respect of th
(i) National Pensions Sc (ii) an annuity policy; (iii) an endowment assur

djointly by the husband and wife each spouse is e investment made by that spouse. d by one spouse on land owned by the other, a 'ear of construction to the spouse incurring the rc is not spread over 15 years undersection 31 (3) ner of the house.
contributions
ide by an individual are qualifying payments
4.1992 on following policies (not being policies nka after 4.7.57),
policy (not being a pure endowment policy) in ch the annual premia are payable of which thc are payable for a period not less than five years. n which premia are payable for a period not less
ce policy,
2 on a policy of insurance against riot or civil ia deductible under section 23),
2d provident or pension fund or to a regulated sits from the releva cimployment are not exempt
(see sub-para 3 10(2) B)
i provident fund for self employed persons.
(Section 31(2)(hh), (hhh) (hhhh) & (i))
e premia is entitled to the deduction.
2 premia of an employee, the employee is entitled paid by the employer are treated as the employee's
e following fall under para (l) (a)
heme of the Insurance Corporation of Sri Lanka.
ance policy;
2

Page 83
(iv) an educational assuran (v) a marriage endowment (vi) a multipurpose policy, (vii) a child's deferred assu (viii) a heritage policy;
10.3.5 Payments made by professionally quali
Any sum prior to 1.4.1992 by an individu following purposes is a qualifying payme
(a) in the payment of subscirption to member or in the purchase of prof
(b) on travel abroad for the purpose
relating to the profession carried on as being ofbcnefit or general adva
In the casc of a claim under para (b. application for such approval shou.
10.3.6 Provision of housing for employees
(1) Any amount spent by a person in co.
flat, or the cost of purchase on accommodation constructed with th and forming part of a registered co
(2) Any amount spent by a person in exceeding Rs. 1,000,000 on or afte purchase not exceeding Rs. 1,000.0 a unit of residential accomodation Development Authority and forming qualifying payments if
(a) the house, flat or units is for oc
loyee of that person;
(b) its floor area does not exceed 2
(c) no allowance is deductible in r
lu.3.7 Expenditure on the education of a child
(l) Any sum expended prior to 1.4.1992
73

e policy,
assurance policy,
ance policy;
Fied individuals
al who is professionally qualified for the ht:
any professional association of which he is a 'ssional books,journals or reports, and
)f participating in any seminar or conference by if such purpose is approved by the Minister ntage to such profession.
(Section 31(2)()) the letter of approval should be obtained. Any ld be routed through the Secretariat.
nstructing on or before 31.3.1989 any house or or before 31.3, 1989 of a unit of residential approval of the Urban Development Authority ndominium property, and
constructing any house or flat at a cost not r 1.4.1989 but prior to 1.4.1994 or the cost of 00 on or after 1.4.1989 but prior to 1.4.1994 of constructed with the approval of the Urban part of a registercd condominium property are
cupation as a dwelling house by an emp
000 sq. ft., and 'spect of it under section 23(1)(f).
(section 31 (2) (1) and (11))
abroad
by a resident individual in connection with the

Page 84
(2)
education outside Sri Lanka ofan education being
(a)
(b)
undergraduate education or are in the opinion of the Sect available in Sri Lanka; or
post-graduate education in a education;
is a qualifying payment
(a) acertificate from the Secreta
first year of granting relicf.
(b) Both husband and wife are e
incurred by each on of them
10.3.8 Expenditure incurred for indoor trea
Any amount spent prior to 1.4.1992 indoortreatment in a hospital or clinic in
10.3.9 Donations to the Government or a sp
(1) A donation made by a person in mc
(a) (b) (c)
(d)
(e)
(f) (g)
(2) (a)
(b)
the Government,
a local authority;
any Higher Educational Instit under the Universities Act, No
the Buddhist and Pail Univers established by, or under, the B 1981; a fund established by the Gov a fund established by a local a fund establishcd by a Provi
is a qualifying payment
Valuation of a donation in ki
In appropriate case the Asse:
74

arried oran unmarried child under 30 years, such
:ourse of training for which adequate facilities 2tary to the Minister of Higher Education not
university or other institution of post-graduate
(section 31 (2) (0))
y, Minister of Higher Education is essential in the
ligible for this releif on the expenditure in fact
tment
2 by an individual as medical expenses for respect of himself his spouse, child or parent.
ecified institution or fund
bney or otherwise to
ute established or deemed to be established . 16 of 1978;
ity of any Higher Educational Institution uddhist and Pali University Act, No. 74 of
ernment: Luthority and approved by the Minister,
icial council and approved by the Minister
(Section 31 (2)(b))
ind-see section 31 (9)(c)
sor should call for the the receipts.

Page 85
10.3.10
10.3.1
0.3.12
(c) Where a donation is made tc nment, the donation is treat collected by a private organis behalf of the government. Re not be accepted.
Expenditure incurred on projects inclu
The expenditure incurred by a person on the Government is a qualifying payment,
(i) with the prior written approval of the (ii) in accordance with such terms and c
Purchase of ordinary shares in a compa
The amount invested by a person in the p shares, in a company approved under sect if the capital of such company exceeds
"Capital has the meaning igven to it in se
Expenditure on the restoration of nayi July 1983.
The amount expended prior to 1.4.1992 b
immovable property, damaged or destroye and 23.08.83, where such expenditure departmcnt performing functions similar
(a) such expenditure is not met out of a the receipts of an insurance policy
(b) no allowance is deductible in respe
' 3.13 Purchase of ordinary shares in compan
0 22DDDD.
The amount invested by a person in the p shares in any approved undertaking bcing
(i) referred to in Section 17C or 22DI
75

a found which is sponsored by the Goverd as a qualifying payment even though it was ution provided that the receipt is issued on :eipts issued by private organisations should
led in a development plan of the Government
any project included in a development plan of f such expenditure was incurred
: Minister, and onditions as may have been specified by him. (section 31(2)(c))
iny approved under section 16A, 22B or 22D
urchase of ordinary shares, other than existing ion 16A, 22B, or 22D is a qualifying payment Rs. 500 million. ction 18(5)
(section 31 (2) (m))
mmovable property damaged by the riots of
by a person on the repair or restoration of any :dby riot or civil commotion between 25.07.83 is certified by REPIA or by a government
o REPIA, is a qualifying payment, if
grant from REPIA or any government fund or against such damage or destruction; and
ct of such expenditure under section 23.
(section 31 (2) (n))
y approved under section 17C, 17 F.22DDD
archase of ordinary shares other than existing a company
D or 22DDDD or

Page 86
(ii)
carrying or an undertaking referre certified by such company as bei productive capacity of such undert
Provided that where the sum so inv referred to in sub-paragraph 7.06 (p. this scction, if an exemption from in from such sale has been granted.
76

d to in Section 17F if the sum so invested is ng solely for the purpose of expanding the aking...is a qualifying payment.
ested is metout of the full proceeds of any sale
of Chapter 7, no. allowance is deductible under lcome tax in respect of the capital gains arising
(section 31 (2) (g))

Page 87
1.1.
1.2
CHAPT
COMP
General
Chapter lx of the Inland Revenue Act deals w as applicable to companies:-
(i) Taxation of Resident Companies (ii) Taxation of Non-Resident Companies (iii) Imputation System of Taxation (iv) Treatment of Dividends
(v) Treatment of undistributed profits
Basis of Liability
(a) A "Company" is defined to mean any c force in Sri Lanka or elsewhere and in
(b) Section 2 of the Inland Revenue Act N
Lanka for every years of assessmenton of the year of assessment. A company liable to income tax. If the company is 1 to Sri Lanka tax. As a result if a comp; either unilateral relief or relief under do resident then only the profits and incor taX.
Section 2(2) of the Act defines the phi Sri Lanka" to mean:-
(a) Profit and income derived from
(b) Profits and income from proper
(c) Profit and income from business
an agent.
Section 68 of the Act further explainst would be liable to Sri Lanka tax if it del of an agent. If an agent in Sri Lanka eff sale of any property on behalf of a nonSri Lanka income tax on the profits aris
77

ER 11
ANES
th Companies. This chapter deals with the following
ompany incorporated or registered under any law in cludes a public corporation (Section 163).
lo. 28 of 1979 imposes liability to income tax in Sri every person on the profits and income of the person and a public corporation are in terms of Section 2 resident then the global profits and income are liable iny has to pay income tax in more than one country Duble tax treaty is provided. If the company is a nonnearising in or derived from Sri Lanka are liable to
ase "profits and income arising in or derived from
services rendered in Sri Lanka.
ty in Sri Lanka.
transacted in Sri Lanka, whether directly or through
he circumstances in which a non-resident company
ives profits and income through the instrumentality ects or is instrumental in effecting any insurance or resident person, the non-resident person is liable to ing from Such transaction. The person in Sri Lanka

Page 88
1.3
1.4
15
who acts for the non-resident person Lanka who is deemed the agent of th the name Of the non-resident and he is or not (S. 68A). Therefore agents who or recoup the tax where there is liabil
Residence of Companies
This has been dealt with in Chapter 2.
Taxation of Resident Companies
The taxation of resident companies is bases ( this). Under this system every resident com
(a)
(b)
(c)
a tax at the appropriate rate on the ta)
a tax of 15% on the gross dividends dis is computed, (A quoted public company is not requ resident person)
An Advance Company Tax (ACT) att of every qualifying distribution made against the tax referred to in Sub-para such set off cannot exceed 50% of th
Any excess which is not so set off against tlh refunded but can be carried forward to the n
Rates of Income Tax for Resident Compa
(a)
(b)
Small Company On the first RS. 250,000 of the taxabl On the excess Of taxable income Over
Small Company which is also a quo a company which satisfied the requir companies.
(1) does not exceed Rs. 277,778 it
(2) exceeds Rs. 277,778 it pays le
Accordingly, where the taxable incor

is deemed to be the agent, Further the person in Sri e non-resident person is assessable in his name or in lable of the tax whether he had the receipt of the profits act for foreign principals should be careful to retain lity to income tax.
Dn the "imputation system" (see chapter dealing with pany is required to pay- «
kable income of the company.
tributed out of the profits on which the taxable income
ired to pay this tax in respect of dividends paid to any
he appropriate rate on an amount equal to the amount . ACT paid in any year of assessment can be set off (a) above payable by the company in that year, but
e tax referred to in Sub-para (a) above.
e tax referred is in Sub-para (a) above cannot be ext succeeding year of assessment (Section 33A).
nies
e income........ 33 1/3%
. Rs... 250,000...100%
Dted public company Where the taxable income of ements of both small companies and quoted public
pays less tax if treated as a Small company, and
SS tax, if treated as a quoted public company
me of such a company.
78

Page 89
(c)
(d)
(e)
Note 1
te 2.
(i) does not exceed Rs. 277,778, it (ii) exceeds rs. 277,778 it will be tr
People's company Quoted public company which is broad based
Other resident Company - (i) for the year of
assessment 1991/92 (ii) for the year of
assessment 1992/93 (iii) for the year of
Assessment 1993/94
A company is broadbased if on the last
(a) the number of persons registerec
(b) no five persons togetherhold dire issued share capital of the compa the conversion of any Public Co. Undertaking, the second require be held by five persons is 65%.
The tax rate for 1994/95 for all resider proposal is not yet enacted as law by P
* Non-Resident Companies
The income tax to which a non-resident comp
(a)
A tax of
(i) 50% for the year of assessment (ii) 45% for the year of assessment (iii) 40% for the year of assessment (iv) 35% for the year of assessment
(This is the budget proposal for 94/95 . to the proposal.)
on the taxable income of the company
7.

will be treated as a Small company; and :ated as a quoted public company.
40% of the taxable income
40% of the taxable income
50% of the taxable income
45% of the taxable income
40% of the taxable income
day of the year of assessment
I as shareholders of the company exceeds 200, and
ctly or through nominees more than 60% of the total ny. Where the quoted public company is formed by
rporation or any Government Owned Business ment as to the maximum shareholding which could
it Companies is 35% of taxable income. This urliament.
any is liable consists of
991/92
992/93
993/94
994/95.
nd the Act has not yet been amended giving effect
ind

Page 90
17
Note:
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(b) A tax amounting to 33 1/3% of than one third Of the taxable it remittances is not less than on
What are "Remittances"?
"Remittances" with reference to a non-resic
(a) Sums remitted or retained abroad Out ( any dividends paid by a resident con
(b) such part of the proceeds of sale abro
abroad, and
(c) in respect of any products exported b not sold at all, Such part of the profits ( as is retained abroad.
The amount of remittances made during the remitted out of profits.
The remittances need not relate to profits e. remitted during the accounting year.
Normally the full amount of the remittance is remitted abroad out of profits to meet expens are deductible in arriving at the remittances
Expenses incurred abroad in connection with brokerage, insurance, commission and the p proceeds of any produce retained abroad.
Where the Head Office expenses of a non-res such Head Office expenses are deductible fr
Where a proportion of the Head Office exp section 23(1), such proportion is deductible f in arriving at the remittances.
In the case of non-resident insurance comp. treated as remittances.
Where a company certifies that the remittan of dividends received by it from resident c scrutiny.

its remittances abroad (where Such remittances is less income) or 11 1/9% of taxable income (where the e third of the taxable income)
lent company means
fthe profits of that company, such Sums not including hpany to Such non-resident company,
ld of products exported by that company as is retained
y that company and not sold in a wholesale market or leemed under section 71 to be derived from Sri Lanka
(Section 34 (2)
accounting year of the company is taken as the sum
arned during the year and would apply to the amount
staken into account. However, where any moneys are es which are allowable under section23(1), such sums
nasale Such as handling and clearing charges, freight, urchase of teachests, etc. are deductible from the ale
sidentcompany are allowed in fullundersection23(1),
om the sale proceeds of any produce, retained abroad.
enses of a non-resident company are allowed under rom the sale proceeds of any produce, retained abroad
anies, any re-insurance premia paid abroad are not
ces during any accounting year were made firstly Out ompanies the statement may be accepted without
80

Page 91
ix)
Sums remitted abroad out of dividends receiv remittances were made in the same accounting
Treatment of inter-company dividends
The scheme which is provided in section 33 to one company to another do not become subjec to the refundable tax (with-holding tax) more th
of inter-company dividends.
Dividends paid by a resident company to any 1 of assessable income of the receiving compan
(a) a deduction has been made by the payin
dividend; or
(b) the dividend is exempt from income tax
(c) the dividend consistofany part of the am from another resident company.
81

dare not treated as remittances whether or not the year as that in which the dividends were received.
35 of the Act ensures that dividends passing from to the tax on the taxable income of a company and nonce. This is achieved by the following treatment
esident or non-resident company do not form part у, if
g company under section 38 in respect of that
under Section 11; Or
ount of a dividend received by the paying company

Page 92
1.1.
CHAP
IMPUTATIONSYSTEM (
GENERAL
Sri Lanka had the imputation system of ta consequent to reforms to taxation Suggestec was introduced for the taxation of compani shareholders are treated as separate taxable When dividends are distributed out of profit of the sharesholder. No credit is given to th results in economic double taxation. The Mil system will be introduced as from April 1, 19 is not the full imputation as prevalent in Sol
Legislation with regard to. Imputation syst
The inland Revenue Amendment Act Company taxation. The relevant sections of
2.1 Section 33A - This section imposes a to as "Advance Company Tax"(ACT) on the specified in the seventh schedule to the Inla of assessment 1988/89 to 1991/92 is as follo
(i) On the amount equal to the amount O.
distribution made by a small compal
(ii) on the amount equal to the amount O. qualifying distribution made by a que company or a people's company ..
(iii) on the amount equal to the amount o qualifying distribution made by a co1 than a Small company, or a quoted p or a people's company
The rate applicable for the years of assessm
(i) on the amount equal to the amount O. qualifying distribution made by a sm
(ii) on the amount equal to the amount o qualifying distribution made by quot company or a people's company

TER 12
OF COMPANY TAXATION
Xation for companies from 1932 to 1958. In 1958, lby Nicholas Kaldor, the classical system of taxation es. Under the classical system a company and its
persons. The Company is taxed at a specified rate. Safter tax, these dividends are taxed again in the hands e Shareholder for the tax paid by the company. This hister of Finance in 1987 proposed that the imputation '88. The system of imputation introduced in Sri Lanka me countries but only half imputation.
em in Sri Lanka.
No. 31 of 1988 provides for the imputation system of
the Act are:-
liability on resident companies to pay a tax referred 2 qualifying distribution made by them at the rates ind Revenue Act. The rates applicable from the year
OWS
fevery qualifying hy . . 25 per centum
fevery oted public
... 33 1/3
fevery mpany other ublic company
50 per centum
ent 1992/93 & 1993/94 is as follows:-
fevery all company 25 percentum
fevery ed public
33 1/3 percentum
82

Page 93
(iii) on the amount equal to the amount of e qualifying distribution made by a unitt or mutual fund or a company other than company, or a quoted public company C people's company
2.2 Section 33B - This Section deals with the
resident person other than a company.
2.3 Section 33C - This section requires a cor
24 Section38. This section requires every re;
statement the following particulars:-
(a) The gross amount of the dividenc
(b) Withholding tax deducted under:
(c) The net dividends paid out.
(d) The composition of the gross divi
of -
(i) Exempt Dividends
(ii) Dividends received, in rela or 331/3%. This rate deper
(ii) Dividends received in rela
(iv) Dividends received in relat
(vii) Profits and Income which
companies (e.g. Capital Ga for acquisition of property,
(viii) Profits brought forward frc
Section 97(4),
This section prescribes the date on which ACT with a declaration in Form 4R9/1.
Section 125(2) - Proviso (iv) - This section presc from previous years.
Section 163 - The term "qualifying distribution
83

tery St. a Small
I 3ι
40 percentum
manner of dealing with a dividend received by a
mpany to maintain a record of dividends received.
sident company to indicate on the dividend warrant
l,
section 38(1).
dend indicating separately the amount paid out
tion to which ACT has been paid at 50% (or 40% nds on the particular year.)
tion to which ACT has been paid at 331/3%.
tion to which ACT has been paid at 25%.
are taxed at rates less than the Standard rate for
ins & Interest received on compensation received
)
om year of assessment 1987/88 and prior years.
is payable. The payment should be accompanied
ribes the manner of set off of Act broughtforward
"on which ACT is payable is defined.

Page 94
3.1
A "qualifying distribution" is the whole or p
(i) by any resident company;
(ii) on or after April 1, 1988;
(iii) in the form of money or of an order t
(iv) out of the profits taxable at the appropri
Revenue Act.
(This restriction excludes from qualifying di imputation system, dividends paid out of cap
(v) not out of profits for any period prior
(vi) not out of exempt profits;
(vii) not out of dividends received from an
Credit for Advance Company Tax (ACT) pa
Companies have to pay company tax on its in the Second Schedule to the Act. This tax (Section 33(1)(a) of the Act). Every resident
year of assessment 1988/89 and subsequent
hat year of assessment.

art of any gross dividend distributed
O pay money;
aterate specified in the Second Schedule to the Inland
stributions, and therefore from the application of the bital gains and Land Reform Commissions Interest.)
to April 1, 1988.
Other company.
lid against Mainstream Company Tax. (MCT),
brofits whether distributed or not at rates prescribed is called Mainstream Company Tax: (MCT).
company is entitled to deduct the ACT paid in any year of assessment. to 50% of MCT payable in
(Section 33A(2)).

Page 95
CHAPTI
P A RT NE
What is a Partnership
A partnership is a contractual relationship wh in common with a view to profit. The essentia
(i) a business, (ii) two or more persons carrying on (iii) a profit motive.
A partnership is not a legal person. A partners persons constituting the partnership called "pa implied by the conduct of the parties. Section that to establish apartnership where the capital In the case of Pate v. Pate (18 NLR 289) it wa maintain an action against the defendant as establishing a partnership.
Income Tax Law and Partnership.
The Inland Revenue Act N. 28 of 1979 and its and Income Tax Ordinance of 1932 did not cont Revenue Amendment Act No. 22 of 1990 a defi is in the following terms:-
"Partnership" shall not include any disposition settlement or other arrangement by which thes a partner of any partnership is shared with any
This definition is not an exhaustive definition b be treated as a partnership for the purposes of the decision of the Supreme Court in the case In this case an agreement by one partner of apar while the share of capital and goodwill of the n father, was held a valid partnership. The argui fictitious by the tax authorities were rejected b
Therefore, after the amendment in June 199 dividing the profits/losses.
85

ER 13
RSHIP.
ch subsists between persons carrying on business
elements of a partnership are:-
the business in common; and
hip can be established by agreement between the rtners". This agreement can be written, verbal or |8 of the Prevention of Frauds Ordinance requires 2xceeds Rs.1000 the agreement must be in writing. s held by the Privy council that a plaintiff cannot there was no written agreement between them
predecessors- Inland Revenue Act No. 4 of 1963 aina definitionoftheterm"partnership". By Inland nition of the term "partnership" was introduced and
, trust, grant, covenant, agreement, assignment, hare of the divisible profits or the divisible loss, of
other person or partnership.
ut merely states that certain arrangements will not Laxation. This definition was introduced to nullify of Dawoodhoy v. C.G.I.R.( ) nership to share his profits/losses with his children lain partnership remained the separate asset of the ment that such an agreement was artificial and y the Supreme court.
) a sub-partnership will not be given effect to in

Page 96
Furnishing of Returns.
Section 65(3) of the Inland Revenue Act emp of a partnership to make a return of profits/lo profits/losses are divided among the partner
Note:
(i) The àqQount of remittances made duringâhe
sum remitted out of profits.
(ii) The remittancespeed not relater6 profits ea amount remitted dying the 3ecounting year,
(iii) Normally the full amoysňpf the remittance is remitted abroad Ou to meet expense are deductible it
(iv) ExpenSesjfcurred abroad in connestion with brokergèlinsurance, commission aħç the pu progeeds of Yny produce retained abroad.
(v) here the Head Nffice expenses of a non-resi
such Head Office expenses are deductible fr
(vi) Where a proportion onthe Head Officeexpe section23(1), such proportion is deduøtible fr in arriving at the remittanses.
(vii) In the case of non-resident instrance compa
treated as remittances.
(viii) Where a company certisistes that the remittanci
of dividends received by it from renident scrutiny.
(ix) Sums remitted abroad out of dividends receiv remittances Wére made in the same accountin
1.8 Treatmeyst of inter-company dividen
The scheme which is provided in section 33 t one company to another do not to the refundable tax (with-ho of inter-company dividen
ing tax) more t
 
 
 
 
 
 
 
 
 

owers the Assessor to call upon the precedent partner sses of the partnership showing the manner in which
accotiqting year of the company is taken as the
ned during the year and woulg/apply to the
taken into account. However, where any moneys are Swhich are allowableMinds Section23(1), Suchs
a sale such assandling and clearinscharges, freight, rchase of eachests, etc. are deductible from he ale
derst company are allowed in full underseysion23(1)
the sale proceeds of any produce, retaished abroads
ndes of a non-resident company ayé allowed under on\the sale proceeds of any produce, retained abroad
hies, ally re-insurance prefnia paid abroad are not
2s during Any acp6unting year were made firstly Out zompanies Nip/Statement may be accepted without
ed aré not treatàd as remittances whether or not the Ayear as that in Which the dividends were received.
o 35 of the Act ensures that dividends passing from ct to the taxon the taxable income of a company and hanonce. This is achieved by the following treatment

Page 97
(c) is first named in the statement made un
4. Divisible Profits of a Partnership.
Section 65(2) of the Act states the method of col method provided is the same as provided in the II of the profits of a person. The provision of Sect the divisible profit. After this all deductions per deducted. However, the following will not be to another person out of Sri Lanka :-
(a) Interest (b) Annuity (c) Ground Rent (d) Royalty.
Section 65(2) further provides that in computing shall not be deducted:-
(a) Salaries or other remuneration of (b) Interest on the capital provided b
The above sums are to be taken into accountinap
5. Assessment on partnership.
Section 66 of the Act provides for an assessme assessment can be made by an ASSessor in Circumstances :-
(a) where no return has been submitte
the Act, or
(b) where a return has been submitte been accepted by the Assessor eit regard to the apportionment of th
The rates of tax applicable to a partnership are:-
(a) Years of assessment prior to 91/92
(b) Years of assessment 1991/92 and subsec
years.
87

ler Section 4 of the Business Names Ordinance.
nputing the divisible profit of the partnership. The land Revenue Act with regard to the ascertainment ions 23 and 24 will have to be applied to ascertain missible in terms of Section 29 will have to be also leducted if it is paid by a person out of Sri Lanka
the profits or losses of apartnership the following
the Partners.
y the Partners.
portioning the divisible profit among the partners.
nt on a partnership in certain circumstances. An. the name of the partnership in the following
:dby the precedent partner under section 65(3) of
by the precedent partner but such return has not her with regard to the quantum of profits or with
divisible profits among the partners.
luent

Page 98
An assessment is made by the tax authorities only v the return of the a partnership, the Assessor w. and allocate it among the partners. Further on thi individual partners. There is however, provision partnership out of the assets of the partnershi partnership.

with a view to compel the precedent partner to furnish ill compute the divisible profits of the partnership 2 share of profits assessments will be issued on the in section 66 (1) to recover the tax assessed on the p or from the partners or from any agent of the
88

Page 99
CHAPT
CHARITABLE
Definition
Section 163 of the Act defines a charitable in
(a) The trustee or trustees of a trust, (b) A corporation, or (c) an unincorporate body of persons,
established for a charitable purpose only or e A “charitable purpose’ means a purpose for in or outside Sri Lanka falling within any of
(a) The relief of poverty;
(b) the advancement of education or
(c) the advancement of religion orth administration of a place of publi
(d) any other purpose beneficial or c
preceding categories.
The rate of tax for a charitable institution is 20 per cent or 55 per cent depending on the da charitable trust one of the following two requ
(a) At the time the trust was created charitable purpose only or
(b) Though not established for a chal
is engaged solely in carrying out
Further, the phrase “For the benefit of the pub to mean the public generally or members of acc to qualify for the benefit under a trust a be descendants of aparticular named person oras of the trust is lost and will be regarded as a fi
(Falil Caffoor v. C.I.T. Sri Lanka Tax (
89

ER 14
NSTITUTIONS
Istitution to mean
ngaged solely in carrying out a charitable purpose. he benefit of the public or any section of the public the following categories:-
knowledge,
e maintenance of religious rites and practices or the c worship,
f interest to mankind not falling within any of the
(Section 163)
| percent whereas the taxon other trusts is either 50
te of creation of the trust. In order to qualify as a irements should be satisfied:-
or established it should have been established for a
itable purpose in any particular year of assessment a charitable purpose.
lic or any section of the public' has been construed immunity generally or members of a faith. Ifin order neficiary has to prove his qualification by being employees of a named company the public character mily trust.
ases Vol.3 p. 96).

Page 100
A trust established for relief of poverty ho beneficiaries are the settler's poor relation:
Scope of Liability
A charitable institution is liable to tax on all exempt and these are dealt with in the next
- Exemptions
(l) The profits of a business carried on by
if
(a)
(b)
(c)
(d)
such profits are applied solely
the business is carried on in t institution; or
the work in connection with the the institution, or
such institution receives grants for the purposes of Section 8(d
Notes:
(i)
(ii)
(iii)
The business profits are exemp charitable purpose of the institu should be actually spent in a pai part of the profits has been appli institution. If so the entire prof Where any part of such profit shares etc., such part will not be
Business carried on in the coul An example of this type ofactiv institution Profits therefrom are the school.
Where a hostel is run by an educ taxifsuch profits areapplied sole
Work in connection with the b An institution which trains the such as the School for the Deal turned out by the inmates. Such
C صص

wever qualifies as a charitable institution even if the
S.
l income derived from any source. Certain profits are
para.
a charitable institution are exempt from income tax,
to a charitable purpose of that institution, and
he course of carrying out a primary purpose of the
: business is mainly performed by the beneficiaries of
from the Government and is approved by the Minister ) (i)(b) and the business is of a casual nature.
(section 8(d)(i))
it from tax only if such profits are applied solely to a tion. It is not necessary that the entirety of the profits ticular year. What must be looked into is whether any ed for a purpose other than a charitable purpose of the its will fall to be assessed.
s is invested in government bonds, mortgage bonds, treated as having been applied for a charitable purpose.
ise of carrying out a charitable purpose: ity is the running of a secondary school by a religious exempt from tax if applied solely for the running of
rational establishment, the profits will be exempt from ly for the maintenance of the educationalestablishment
usiness mainly performed by the beneficiaries: poor or handicappeed people for gainful occupations, and Blind, may earn profits from the sale of articles
profits will fall within this category.
20

Page 101
5
The profits from a carnival run b category, whereas the profits from or those from a benefit film show
(iv) Business of a casual nature:
The institution which receives g approved by the Minister for the carnival, benefit show etc., will f The approval under this section charities under section 31 (9)(a).
Net annual value
The net annual value of a place of public wors of any premises owned and occupied by it ar
Such places and premises would include tem of monks. Where a part of the premises is use purposes, a reasonable proportion of the n.a.
Income from property donated by royal ol
The income from any property donated by roya worship administered by a charitable institutio, was made is exempt from tax.
The properties donated by royal grant before viharagam or devalagam The title of these pr royal grant by the ancient kinks was recorde form of a rock inscription or, in the case of late royal grants it will be normally assumed tha purposes for which such grants were made devalagam will be exempt from tax.
It is also necessary to take into account the buildings put up on a viharagam or devalagam of these properties are exempt. But the profits f
Offertories, subscriptions and donations:
Offertories, subscriptions and donations recei Charitable Institutions which provide care fo
91

y the students of a school will also fall within this a tea estate owned by a religious institution or school
will not.
rants from the Government should be specifically purposes of Section 8(d)(i)(b). The profits from a all within this category.
should not be confused with approval granted to
hip administered by a charitable institution and that e exempt from tax.
(section 8(d) (ii)) ples, churches, mosques, schools and the residences i for a charitable purpose and apart is used for other v. will be treated as exempt.
r other grant:
alorother grant before 2.03.1815 to a place of public n which is applied to the purposes for which the grant
(section 8(d)((iii))
02.03.1815 to vihares and devales are referred to as operties is usually established frotradition but every d. The record is called a Sannasa. It may be in the r grants, writing on an Ola leaf. In the case of ancient it the income from the properties is applied to the and accordingly, income from all viharagam and
later development of these properties. Rents from and the profits arising from permanent cultivation roma carriedonina building on such landare liable.
ved by a charitable institution are not liable to tax. r the sick and needy

Page 102
7.
Charitable Institutions which provide c
From the year of assessment 1991/92 a char for the sick and needy is entitled to seek fr reduction or remission of the tax payable b granted by the Commissioner - General un
Exemption Limit
A charitable institutionis liable to tax only i 30(2)).
Rate of Income Tax
The rate of income tax applicable to a char

are for the sick and needy
table institution which provides institutionalised care m the Commissioner - General of Inland Revenue a y the institution. The remission or reduction will be der the following terms:-
fits assessable income exceeds Rs. 27,000 - (Section
table institutions 20%.

Page 103
CHIAPT)
CLUBS, TRADE A
Basis of Liability
(1) Clubs.
(i)
(ii)
(iii)
A body of persons (whether corp institution is liable to income tax f
Where a club or a similar institu receipts (including entrance fees income tax only on its investment
Where a club or similar institution from its members, it is treated as
(a) on its income from transac entrance fees and subscrip
(b) on its investment income.
Note: Sports Clubs and association tax on the basis set out above. The a club or association is exempt fro of sport and is used for such purp
Trade Associations
(i)
(ii)
A trade association or a chamber more than half of its receipts by persons who can claim these sums it is liable to income tax either
(a) on its income from transac entrance fees and subscript
(b) on its investment income w
A trade association or a chamber business is liable to income tax on
93

R 15
SSOCIATIONS
orate or noncorporate) carrying on club or similar om all sources enumerated in Section 3 of the Act.
tion receives more than three-fourths of its gross and subscriptions) from its members it is liable to income. The business income is exempt.
receives less than three-fourths of its gross receipts arrying on a business and is liable to income tax.
tions both with its members and others (including lions) and
is other than trade associations are liable to income net annual value of any building owned by such n income tax if the primary object is the promotion )SC.
(Section 90(1))
of commerce is treated as carrying on a business if way of entrance fees and subscriptions are from as deductions from their income. In such an event
ions both with members and others (including ions) or
hichever is greater.
)f commerce which is not treated as carrying on a
its investment income.
(Section 90(2))

Page 104
Rates of Income Tax
The rate or income tax applicable to clubs
Example (1) United Sports Club per member. The rules of the sch club. The net income of the clu the year 1985-86. The club is ve: bearing interestat l6 per cent. F on its interest income of Rs. 16, a tax free allowance.

and associations is 20 per cent of the taxable income. has 400 members. The annual subscription is Rs. 100 ub prohibit non-members enjoying the facilities of the b (from its bar and other activities) is Rs. 75,000 for ited Rs. 100,000 in the Bank of Ceylon Fixed Deposit or the Year 1985/86 United Sports/club is liable only )00. The full income is liable as club is not entitled to
94

Page 105
CHAPT
UNIT TRUSTS AND
General
Section 64A states that for the purposes of the shall be deemed to be a company residentin S. to resident companies will apply to Unit Trus necessary changes). A Unit in a unit trustorm is deemed to be a shareholder.
The profit and income of the Trustee of a U following are deemed to be the profits of a c
(a) Income from any property
(b) Profits from any trade or busines:
may be)
Any distribution of the profits and income of a distributed to the shareholders of a company. T of a trust or the custodian of a Mutual Fundisc or expense of the Unit Trust or Mutual Fund.
Exemption
Section 22 DDDD grants exemption from inco the commencementofthe year of assessmenti to carry on business. The exemption will app approved by the Minister of Finance and such before 1st April 1992.
Tax Rates
(a) The rate of tax for year of assess
(b) The rate of tax for year of assess

ER 16
MUTUAL FUNDS
Inland Revenue Acta Unit Trustanda Mutual Fund iLanka. Furtherall the provisions of the Actrelating ts and Mutual Funds mutatie mutandis (i.e. with the utual fund is deemed to be a share and the unitholder
nit Trust or Custodian of a Mutual Fund from the Iompany:-
carried by the Trustee or the Custodian (as the case
unit trust or mutual fund is deemed to be a dividend he sums paid as remuneration to a manager or trustee leductible undersection 23 of the Act as an outgoing
me tax for a period offive (05) years reckoned from n which such Unit Trust or Mutual Fund commenced ly only to Unit Trusts and Mutual Funds which are notice of approval is published in the Gazette on or
ment 1991/92 - 50% of taxable income
ment 1992/93 & 1993/94 - 45% of taxable income

Page 106
CHAPT
RECEIVERS, TRUST
17.01. Receivers
(1)
(2)
(3)
(4)
Definition
A receiver includes any liquidatc possession or control of the p bankruptcy.
Funishing of returns
A receiver is required to furnsih control.
Scope of liability
A receiver is chargeable with inco
control.
Rate of income tax
The rates of income tax applicable
(i) for any year of assessment co
prior to 1.4.1992
(ii) for any year of assessment co
on or after 1.4.1992
The rate of income tax applicable
the company concerned
17. 02. Trustees
(l)
Definition
A trustee includes any trustee, gui direction, control or management not include an executor.

ER 17
EES & EXECUTORS
or, and any assignee, trustee, or person having the roperty of any person by reason of insolvency or
(see section l63)
a return of the income from the properties under his
(section 60)
me tax on the income of the properties subject to his
(section 60)
2 to receivers (other than liquidators) are -
mmencing
40%
mmencing
35%
to liquidators of companies is the rate applicable to
(Third schedule)
ardian, curator, manager or other person having the of any property on behalf of any person, but does
section (1 63)
96

Page 107
(2)
(3)
(4)
Furnishing of returns.
A trustee is required to furnish a retur the trust.
Scope of liability
A trustee is chargeable with income ta income of the trust to which the benef chargeable on their shares of income. It follows that if the beneficiaries are no of the trustis assessable on the trustee ( to the beneficiaries.
Note:
(i) Trust expenses are normally not the trust as such expenses are in thi if management expenses For in dividend income.
(ii) The capital gains arising on the ti the trustee to any beneficiary are ( transfer to any other person are li
Rates of income tax
The rates of income tax applicable to
(i) for any year of assessment comm
prior to 1.4.1992
(ii) for any year of assessment comm
on or after 1.4.1992
Note :
(i) Wherea trustee has been appointe to trustees under last wills on the
(ii) The trustee ofan incapacitated pe.
and to the like amount as such pi person could also be assessed dir
97

n of the income from the properties subject to
(section 60)
x on the income of the trust less the share of the ciaries are legally entitled. The beneficiaries are
tentitled to any part of theincome, the full income ven though a part of it may have been distributed
(section 60)
allowable as a deduction from the income of 2 nature ofmanagement expenses are in the nature stance trust expenses cannot be deducted from
ansfer of any property subject to the trust from xempt from tax. The capital gains arising on the able to tax.
(section 14 (a) (v))
rustees (including trustees under last wills) are
Lencing
50%
encing
35%
(Third schedule)
underalast will, he is taxed at the rate applicable date of death of the testator.
sonis chargeable with income taxin like manner rson would be chargeable under the Act. Such
2ctly in his own name.
(section 61)

Page 108
(5)
An incapacitated person means a
Recovery of tax
The tax due from a beneficiary ma had been made upon the latter.
17.03. Executors
(1)
(2)
(3)
Definition
An executor means an executor ol includes -
(a) any person who takes possess
person,
(b) any person who has applied
or resealing of probate or le deceased person; or
(c) a trustee acting under a trust
Furnishing ofreturns
An executor is required to furnish by him.
Scope of liability
(a) Periods prior to the death:
An executor is chargeable w of any periods prior to his ( aggregate of -
(i) the deceased person's es (ii) any part or other person
The Assessor must finalise t the end of the year of asse administration issued.

ly minor, lunatic, idiot or person of unsound mind. (section 163)
y be recovered from the trustee even if no assessments
(section 135)
administrator of the estate of a deceased person and
ionoforintermeddles with the property of a deceased
or is entitled to apply to a District Court for the grant :tters of administration in respect of the estate of a
created by the last will of the author of the trust.
(section 163)
a return of the income from the estate administered
(section 63)
ith the taxes due from the deceased person in respect leath. The liability of an executor is limited to the
tate in his possession or control, and
having any interest in such estate.
he deceased person's liability to tax within 3 years of ssment in which probate was granted or letters of

Page 109
17.5
(4)
(b)
(i) (ii)
The assessment could, howe or under assessment was by r.
(i) fraud or wilful evasion by
(ii) an incorrect statement by
Example:
X died on 1.10.88. Probate w; The last date on which an asse 31,0395.
Periods subsequent to the dea
A beneficiary is chargeable v entitled from the estate ofasci The executor is not ordinary circumstances :
(i) where the will is conteste (ii) where the will is not clear
(iii) where the law of inheritar
Where the executoris so charg The beneficiaries are assessed are ascertained. Under no circi any period commencing after
Rate of income tax
The rates of income tax applicable t
for any of assessment comme
for any year of assessment co
Joint trustees or executors
Where two or more persons act in the capa person's estate, they may be charged jointl arc chargeable in that capacity, and are joir
99

ter, be made at any time where the non-assessment ason of
the deceased person, or
the executor of his estate. -
(section 62)
as granted on 1.08.91. ssmcnt or an additional assessment can be made is
th :
vith tax on his share of the income to which he is ertained, the executor is chargeable with tax.
chargeable with tax except under the following
i;
, or
ice applicable is uncertain.
eable for a period, the assessments are made on him. on their shares from the date on which their shares umstances will an executor be assessed in respect of that date.
(section 63)
o executors (other than trustees under last wills) are:
ncing prior to 1.4.1992......... 40% mmencing. on or after 1.4.1992............. 35%
(Third schedule)
city of trustees of a trust or executors of a deceased
y or severally with the income tax with which they
ntly and severally liable for the payment of such tax.
(section 64)

Page 110
CHAP'
EXEM
1. GENERAL
Chapter 3 of Inland Revenue Act deals wit can be divided into the following categorie
(a)
(b)
(c)
(d)
(e)
(f)
Exemption from income tax of certail
Exemptions fron income tax of certai Section 9
Exemption from income tax of interes Resident Foreign Current Account - S
Exemption from income tax of divide - Section ll
Exemption from income tax of rents
Exemption from income tax of certai
2. EXEMPTIONS FROM INCOME TAXO
- SECTION 8
(a)
(b)
(c)
Sixty four institutions are enumerate 1979 (as amended by the Amendmen and 35 of 1993). Readers are referre
Section 8(b) of the Act grants exemp The income of any local authority o exempt from income tax:
(i) The income of any trust or other
or the government institution to institution is not benegicially en
(ii) The profits and income of any Government under the Business
Section 8(c) of the Act grants exem
(i) The Government of any foreign granted in money, goods or any

TER 18
PTIONS
h exeptions fromincome tax. The exemptions granted
S -
n persons on their profits and incom - Section 8
n profits and income of government employees -
it received from the National Savings Bank and Nonsection 10
inds received from companies anjoying tax holiday
received from property - Section 12
subsidies - Section 13
N THER PROFITS AND INCOME
d in section 8(a) of the Inland Revenue Act No. 28 of ut Acts 22 of 1990, 42 of 1990, 49 of 1991, 63 of 1992 'd to the Act for the names of these institutions.
tion to any local authority or Government institution. r government institution from the following are not
matter vested in or administered by the local authority ) which income the local quthority or government titled.
business undertaking acquired by or vested in the Undertakings Act No. 35 of 1971.
ption to the profits and income of the following:-
country or any agency of that Government from aid other form by that Government.
Os)

Page 111
(ii) The Government of the People'R of the profits and income derived referred to in any agreement betwe of the People's Republic of China
(iii) The profits and income of the Ins life insurance business from the y
(iv) The profits of a foreign currencyb
(d) Section 8(d) of the Act grants exempti This aspect has been covered in the ci
(e) Section 8(e) of the Act grants exempti crafts registered with the Director of N to individuals who are non-citizens of owned entirely by non-citizens of Sri
(A) EXEMPTION FROM INCOMETA.
SECTION 9
From 1979 governmentemployees, em are exempt from income tax. From following:-
(i) EXEMPTION FROM INCOME TAX
From 1979 governmentemployees, em are exempt from income tax. From ls following:-
(i) Exoluments, pension and any othe President of the Republic of Sri L
(ii) Official emolument of the followi
(i) any individual paid out of th
(ii) any employee of any public
such emoluments or such pe party out of the sums voted at
Consolidated Fund;
(iii) the Governorforany Provinc
(iv) any member of any Provinci
10

:public of China or any agency of that Government from the business of ship-owner or charterer and en the Government of Sri Lanka and the Government
urance Corporation of Sri Lanka attributable to the ear of Assessment 1979/80
anking unit from all offshore trasactions of the Unit.
on from income tax of certain charitable institutions. hapter dealing with charitable institutions.
on from undertakings operating yachts and pleasure Aerchant Shipping. The exemption is available only Sri Lanka or to a company the shares in which are
Lanka or non-resident companies.
X OF GOVERNMENT EMPLOYEES
ployees of corporations and employees of universities st April 1993 the exemption is granted only to the
OF GOVERNMENTEMPLOYEES - SECTION 9
ployees of corporations and employees of universities st April 1993 the exemption is granted only to the
benefitarising to any person from the office of the anka.
ng individuals:
e Cinsolidated Fund;
corporation being a public corporation which pays
insionor such profits from emplyments wholly or Lnually by Parliament to such corporation from the
eappointed under Article 154B of the Constitution;
al Council;

Page 112
3. (B)
3. (C)
3. (D)
(v) any employee of any Pro
PublicSerice;
(vi) any member of any local
(vii) any employee of any loca
(viii) any employee of any Univ. by the Universities act, N
(ix) any employee of the Inst the Institute of Policy Stuc
(iii) Pension received by an individu a corporation which pays such | by Parliament to such Corporat
EXEMPTION TO SCIENTISTS, T
Section 9(1)(c) of the act grants ex citizens of Sri Lanka) on emolumen Technicians, Experts and advisers.
DIPOMATIC REPRESENTATIV DIPLOMATIC REPRESENTATIV
Section 9(1)(d) grants exemption frc and members of the staff of any Di
EXPERTS, ADVISERS, TECHNI ( SPECIALIZED AGENCY OF TH
Section 9(1)(g) & (h) grants exemp
(a) Official emoluments of any citi technician or official by the U.
(b) the official emoluments of a International Irrigation Manag Development Bank.
4. EXEMPTION FROM INTEREST
(i)
Section 10(b) grants exemption fron (a)National Savings Bank Certifical granted on interest as does not excec higher. This exemption was availab

vincial Council; or to any officer of any Provinicial
uthority;
| authority;
rsity which is established or deemed to be established o. 16 of 1978;
itute of Policy Studies of Sri Lanka, established by lies of Sri Lanka Act. No. 53 of 1988:
al for past services who performed those services to pension wholly or partly out of sums voted annually ion from the Consolidated Fund.
ECHNICIANS, EXPERTS AND ADVISERS
cmption from income tax (to individuals who are not its and income not arising in Sri Lanka to Scientists, Readers are referred to Section 9(1)(c).
VES & MEMIBERS OF THE STAFF OF THE VE
pm Sri Lankaincome taxto Diplomatic Representative olomatic Representative.
CANS & OFFICIALS OF THE U.N.O. OR ANY E U.N.O.
tion from Sri Lanka income tax to the following:-
Zen of Sri Lanka employed as an expert, adviser, N.O. or any agency of the U.N.O.
ly employee of the World Tourism Organization, 2ment Institute, Colombo Plan Bureau & The Asian
nincome taxon interest received by an individual from es and (b)National Savings Bank. This exemption was d Rs. 2000 or 1/3rd of the total interest whichever was le only up to 31st March 1991.
02

Page 113
(ii)
(iii)
Section 10(c) grants exemption to intel Government of Ceylon or to a Public any Commercial Bank operating in Sr
(a) Company outside Sri Lanka (b) Partnership outside Sri Lanka (c) Body of persons outside Sri Lank
But the exemption is granted only if suc for the exonomic progress of Sri Lank
Section 10(d) & (e) of the Act grants ex
(a) Interest accruing to any person frc with approval of the Central Bank
(b) Interest accruing to a person on m
account opened by him.
(c) Interest accruing to any person on any foreign currency banking unit
EXEMPTION FROM INCOME TAX OF (
Section 11 of the Inland Revenue Act grants exe
(a)
(b)
(c)
Dividends paidbya BOICompany du within one year thereafter.
Dividends paid by a company enjoyin, the Inland Revenue Act:-
(i) Section 80a) (xxxvilii) (ii) Section 15, 16, 15A, 16B, 16C (iii) Sections 17, 17A, 17C, 17D, 18 (iv) Sections 20, 20A, 20B, 20C (v) Sections 21, 22, 22A, 22B, 22C, 2
This exemption is available to dividen within one year thereafter.
Dividends declared by a company ou company (mentioned in (a) or (b) abov
103

estaccruing to the following on loans granted to the Corporation orto any Governmentlnstitution orto i Lanka by :-
h loanisapproved by the Ministeras being essential
а.
emption from income taxon the following interest:-
»m special accounts opened in a Commercial Bank
of Sri Lanka.
oneys lying to his credit in foreign currency in any
moneys lying to his credit in foreign currency with I. (FCBU).
ERTAIN DIVIDENDS
mption from income taxon the following dividends:
ring the period the company enjoys a tax holiday or
g tax holiday under any of the following section of
& 19
2D, 22DDD & 22DDD.
ds declared during the period of the tax holiday or
ut of dividends received by it from a tax holiday 2) to a shareholder is also exempt from income tax.

Page 114
6. EXEMPTION FROM INCOME TAX OF
The following income from property is exe
(a)
(b)
(c)
(d)
Net annual value of one house owne
Income accruing to an owner of a ho
(where the floor area is less than 3000 feet, exemption is for 10 years.
Income accruing to an owner of a ho the floor area is less than 200 squaref the exemption is for 10 years.
Income accruing to an owner of a hou is also granted exemption from incon residence (after the conversion) is less 1000 square feet the exemption is fo
7. EXEMPTION FROM NCOME TAX OF
Section 13 of the Act grants exemption fron The followin are granted exemption:-
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
out of the Capital Fund established i
out of the Rubber Replanting Subsi Subsidy Act,
by the Coconut Cultivation Board es 46 of 1971;
under the coca Planting Subsidy Sch
by the Ministry of Fisheries for the engines, fishing gear and other fishi
out of the Export Drvelopment/funde No. 40 of 1979;
under any other scheme for the plan
out of the Mill Deveopment Fund a
established under the coconut Devel machinery.
1(

INCOME FROM RENT
mpt from income tax under section 12:-
d and occupied
use constructed prior to 31st March 1989 for 7 years square feet). If the floor area is less than 1500 square
use constructed after 31st March 1989 for 7 years if 2et. Where the floor area is less than 1500 square feet,
se who converts it into two or more placesofresidence ne tax. The exemption is for 6 years if each place of than 100 square feet. If each place of residence is over r 4 years.
SUBSIDIES & GRANTS
n income tax of a subsdy grant received by a person.
nder the siri lanka Tea Board Law, No. 14 of 1975;
dy Fund established under the Rubber Replanting
tablishcd under the Coconut Development Act, No.
Leme;
purchase by such person of fishing boats, marine ng equipment,
stablished by the SriLanka Export Developmnet Act,
ting or replanting of any other agricultural Product,
dministered by thc coconut Development Authority pment Act, No. 46 of 1971, for the modernisation of

Page 115
8.1
8.2
8.3
8.5
S.6
* Paragraph (c) omitted-Seection 5 of Act N
MSCELSNEOUS EXEMPTIONS The Act in Section 15 and 5A has granted S paragraph.
EMOLUMENTS EARNED BY AN INDV
Section 15(c) grants exemption to residentind course of any profession or vocation on their ea only if the total earnings less any personal Commissioner General) are remitted to Sri La
PROFITS EARNED BY RESIDENT COM
Section li5(cc) of the Act grants exemption fro which render the following services outside S
(a) Profession (b) Vocation (c)C.
The exemption will be granted only if the t reasonable by the commissioner-General) arc exemption is only available to companies and
Section 15(ccc) grants exemption from incomets in Sri Lanka to a person or partnership (who is vocation (but not in the course of employment partnership should be remitted to Sri Lanka thro
PROFTTS AND NCOME OF ANY NAT
Beginning from the year of assessment l Association of sports (registered under Spor on any foreign currency earnings for service should remit their foreign currency less anye - General to avail of this exemption.
EXEMPTION FROM INCOME TAXIS
Section 15A of the Inland Revenue Act grants income derived from abroad for a period of 5 y quest scheme approved by the Government by such a resident guest is granted citizenship in
10

o No. 40 of 1981.
everal exemptions. These will be dealt with in this
DUAL,
ividuals who render services outside Sri Lanka in the rnings inforeign currency. The exemption is granted expenses (which are treated as reasonable by the nka.
MPANY OR PARTNERSHIP
m income tax to resident companies and partnerships ri Lanka and earn foreign currency.
onstruction Project
otal earnings less expenses (which are considered 2 remitted to Sri Lanka. It should be noted that this partnership who carry on a profession or vacation.
xtoindividuals and partnerships who render services outside Sri lanka) in the course of any profession or ). The emolument and fees earned by the person or ough a Bank.
IONAL ASSOCATION OF SPORTs
990/91, the profits and income of any National ts Law No. 25 of 1973) is exempt from income tax is rendered by such an Association. The Association xpenses considered reasonable by the Commissioner
RESIDENT GUESTS
exemption from Sri Lanka income tax on profits and 'ears to a resident guest registered under any resident the Sri Lanka. The exemption will be withdrawn if Sri Lanka from the date of the grant of citizenship.

Page 116
1. (а)
(b)
OHΑΡΤ
TAX HOLIDAYS UND
Strategy for Industrialisation in Sri Lank
In November 1989 the Ministry of Industric for Industrialisation in Sri Lanka with a forc forward, “it is opportune now to give a industrialising. The document sets out propo to give the boost by the Minister of Industri
Fiscal Incentives
The document released by the Minister of II which should be granted by the Governmen achieve the objectives of the Government w
Article 4 is set out below:-
In the current political and economic circu incentives to new investments during an in
industries and to get the economic growth, f
(a) to improve the general economic clir
foreign investors;
(b) to counter-balance the inevitable time implementation of macro economic a
* (c) to encourage re-structuring and moc
themselves to rapidly changing mark
(d) to promote qualitative and quantitati
internationally competitive;
(e) to encourage large scale and higherris which face long gestation periods bel
x صلت (f) to promote mobilization of greater lo institutions and newfinancial instrume
(g) to promote greater employment and
unemployment, and
1C

ER 19
ER ACT N0. 42 OF 1990
's published a document under the title A Strategy
word by the Minister of Industries. According to the strong boost to economic development through
sals whichshouldbeimplemented by the Government cS.
dustrics in Article 4 dealt with the fiscal incentives tal to encourage entrepreneurs to invest and thereby rith regard to industrialisation.
mstances, it is vital and imperative to grant special itial period to off-set disadvantages faced by local or the following reasons:
nate and restore greater confidence among local and
: needed to restore adequate market incentives by the
ind structural reforms;
lernization of industries, so the they would adapt et conditions;
ve improvements in exports, so tat they would be
Kinvestments of an innovative and pioneering nature, ore they become viable;
cal and foreign capital, by fostering new financial nts, and by encouraging capital market developments,
training of skills in a situation of high structural

Page 117
(h) to match incentives and concessions of
Lanka in export markets.
The disabilities faced by local industries ace as fiscal incentives involving preferential tax tre holidays, exemptions, investors, investment re because they are well understood by localinvest incentives during a short period, it is propose products and processes which will be made du 1, 1990.
ENCOURAGEMENT OF INVESTMENT
Venture Capital companies, Unit Trust/Mutu: Ministry of Industries and the expansion if spec entitled to the following during the period Janu
(a) The present Scheme of Investment Relic
(b) Waiver of tax on Capital Gains realize purposes as at January 1, 1990 provid specified industrics (including expansion Funds. The investor could in the alternati an event he will not be eligible to Invest sale proceeds referred to above from As such Assessable Income;
(c) Waiver of Tax on Capital Gains in the ha companies on the sale of stocks and sha
TAX HOLIDAYS
The following categories will be entitled to Tax provided the initial investments are made durin
(a) new projects defined by the Ministry of I regard to products and processes. These Trust/Mutual Fund Companies, providin related development including software a industries;
(b) companies providing infra-structure faci
projects,
(c) off-shore services such as Insurance, Shi Loans and Inter-national Consultancy, a
107

ered by other countries which compete with Sri
barriers to investment. These are best off-set by atment which are targeted clearly and will. Tax lief and deductions are preferred as instruments ors are expected to restore adequate market related d to limit the fiscal incentives to investment in
ing a period of 2 l/2 years commencing January
al Finds, pioneering projects as defined by the ified industries approved by the Ministry will be ary 30, 1992:-
f will continue;
'd by the sale of existing assets declared for tax 2d the entirety, of the proceeds are invested in ). Venture Capital Companies, Unit Trust/Mutual ve claim exemption of capital gains tax but in such ment Relief on investment made in excess of the Sessable Income up to a maximum of 33 1/3% of
unds of Venture Capital, Unit Trust/Mutual Fund
CS.
Holidays/Tax Exemptions for a period of 5 years, g the period January 1, 1990 to June 30, 1992:
industries as being of a pioneering nature, both in ! will include Venture Capital Companies, Unit g training in manufacturing processes, Computer nd industrial design and specified labourintensive
lities for labour intensive and/or export oriented
sping and Aviation, Underwriting, Syndication of nd

Page 118
(d) the profit component resulting from exp by installing additional plant and mach
INCENTIVES FOR MARKETING AND
(a) Double deduction of the undermentione for a period offive (5) years for the pro value added is more than 40% or the la 60% of the total local value added:-
(i) participating in overseas trade 1 (ii) expenses on overseas trade offi (iii) advertisements in overseas pub (iv) promotional literature such as c
(v) other expenses on overseas mau
(b) All local media advertising expenses sa boards and hoardings will be allowed in advertisements in souvenirs will be ado
RESEARCH AND DEVELOPMENT
(a) Following taxincentives will be granted
of the end product:-
(i) double deduction of expenditur
(ii) write-off against revenue over
licensing, and
(iii) industrial building allowances c
(b) Research and development grants for p
(i) m Research and development grar
(ii) Technical assistance schemes 1
upgrade themselves;
(iii) Small industry financing schem
upgrade themselves,
(iv) Market development assistance
marketing products overseas.
108

bansion of capacity in respect of existing industries inery as approved by the Ministry of Industries.
PROMOTION
ditems from the Statutory Income will be permitted
motion of non-traditional exports where the local bour component of local value added is more than
airs and exhibitions,
ces;
lications; atalogues and brochures, and
sket development.
ach as payments to advertising agents, cost of bill
full as deduction from Statutory Income and only led back in arriving at the Assessable Income.
for upgrading production processes and the quality
e on Research & Development and training;
10 years, the payments made for manufacturing
on buildings used for Research and Development.
roduct development,
hts for product development;
to enable small and medium level companies to
es in order to assistsmall industries to expand and
schemes to defray initial costs of developing and

Page 119
2.2
REFINANCING SCHEMES
(a)
(b)
(c)
(d)
Existing refinancing schemes on pack and export trading houses. Commerci charge reasonable spreads over the ra
Packing credits for products of new in eligible for re-financing under Categ to encourage the creation of new emp and the wastage and spoilage during th underCategory2 for an initial perio of new employment which would in spoilage during the formative years. Ir re-finance (i.e. packing credit) will be
Refinance facilities for a period of 15 the case of “Category l’ will be avail: to give relief during the formative yea
Concessionary medium and long tern Developmentbanks for purposes ofdir preference shares attracting lower di facility will be extended in respect of where the Ministry of Industries cons
Legislation Granting Tax Holidays
1.
Legislation giving effect to the propos: Industries was passed by Parliamentan No. 42 of 1990. The Several tax holid,
Exemption from Income Tax of any Purch
Section 17B of the Act grants a tax holiday fo of the tax year in which an undertaking comn granted to the undertaking if the following c.
(a)
(b)
(c)
The undertaking should commence to
The undertaking should be approved b the Minister in charge of Policy Planni
Section 17B applies and notice should
The undertaking is engaged in purchas commodity other than the following p
109

ing credit will be restructured to assist industrialists albanks and Development banks will be directed to te of interest charged by the Central Bank,
dustries and for products of new expansions will be ory 2 for an initial period of three (3) years. This is loyment which would involve training of personnel he formative years. In the case of traditional exports d of three (3) years. This is to encourage the creation volve training or personnel and the wastage and the case of traditional exports under “Category l’, restricted to 50% of the value of exports;
0 days in the case of “Category 2 and 120 days in able to certain specified industrial products in order
irs,
n finance will be provided by the Central Bank to ect capitalinvestmentandinvestmentin redeemable vidends in specified industries/projects. This same investments for the rehabilitation of sick industries iders the need to rehabilitate and restructure.
als speltoutjn document released by the Ministry of discontained in Inland Revenue (Amendment) Act. ays contained in this Act will be dealt with here.
yasing Centre.
rt period of five (50 years from the commencement hences to carry on business. The tax holiday will be ynditions are satisfied:-
carry on business on or after list January, 1990.
у the Minister of Finance on the recommendation of ing and Implementation as an undertaking to which be published in the Gazette prior to 1st April 1992.
sing for resale of any agricultural or export oriented roducts:-

Page 120
(d)
(i) Black tea in bulk (ii) Crepe rubber (iii) Sheet rubber (iv) Scrap rubber (v) Coconut oil (vi) Dessicated coconut (vii) Copra (viii) Fresh coconuts (ix) Coconuts (x) Coconut fibre (xi) Any other commodity that m
published in the Gazette.
The undertaking is mot formed by tl business which was previously in exi term “any agricultural or export orie. to which tax holiday will apply:-
(i) Agricultural produce other tl (ii) Commodities manufactured (iii) Manufactured articles intend
Exemption from Income Tax for Pionee
Section 17C of the Act grants a tax holiday on by a Company from the commenceme business if the following conditions are sati
(a)
(b)
(c)
The Company should commence to
The company should be approved by by the MinisterofFinance ona recom to which Section 17C is applicable.
The company should be engaged in
(i) An industrial undertaking of industrial processes.
(ii) An undertaking for the pro computer software and comp

ay be specified by the Minister of Finance by notice
he splitting up, reconstruction or acquisition of any stence. Section 17B also enumerates by definition the inted commodity. the following are the commodities
han those specified in para (c) above. from any agricultural produce. led to be supplied to any exporter for export.
r Undertakings of Companies.
for a period of five (5) years to an undertaking carried ht of the tax year in which the Company carries on isfied:-
carry on business on or after list January 1990.
notice published in the Gazette before list April 1992 mendation by the Minister of Industries as a company
the following business:-
a pioneering nature in regard to industrial products or
vision of training in manufacturing processes or outer related development or industrial design.
10

Page 121
2.4
2.5
The taxholiday will not be granted if the unde or acquisition of any business which was pre
Exemption from Income Tax for Compan
Section 17D the Act grants a taxholiday for a structure facilities, from the tax year in whic
The tax holiday will be granted to a company
(a) The company should commence to ca
(b) The company should be approved by n
by the Minister of Finance on a recom 17D is applicable
(c) The company should be engaged in c location infra-structure facilities incluc the exclusive use of each of not less thi in that location of goods or commodit
The tax holiday will not be granted if the unde or acquisition of any business which was pre
Exemption from Income Tax of off-shore Section 17E of the Act grants a tax holiday fo registered under Part VIII of the Companies .
The tax holiday is granted if the Company is following activities:-
(i) Provision of insurance services (ii) Provision of aviation services (iii) The under-writing of or syndication ol (iv) Provision of international consultancy (v) The combination of two or more of th
The conditions for the grant of tax holidayar
(i) Approval must be obtained from the
published in the Gazette on or before
(ii) The Profits (less such amountforexpens
111

rtaking is formed by the splitting up, reconstruction viously in existence.
tes Providing Infra-Structure Facilities.
period offive (5) years, to company providing infrah such company commence to carry on business.
if the following conditions are satisfied:-
rry on business on or after list January, 1990.
otice published in the Gazette before list April 1992 nendation by the Minister of Industries that Section
arrying on an undertaking which provides in any ling floor space of not less than 2000 sq. ft. each for an 20 enterprises for the production or manufacture les.
rtaking is formed by the splitting up, reconstruction viously in existence.
Companies from certain on-shore Services. or a period offive (5) years to off-shore companies Act No. 17 of 1982.
engaged on-shore in off-shore transaction in the
loans.
services.
: services mentioned above.
Pè* ء محم
Minister of Finance and such notice should be he 1st April 1992.
es asis consideredreasonable bythe Commissioner

Page 122
2.6
General of Inland Revenue) must be
Exemption from Income Tax on the Profit
Section 17F of the acthas granted a five (5) yea which have expanded their production ormal is granted to the profits and income attributab sets out the method of calculating the profits
The taxholiday is granted to a company, indi satisfied:-
(i)
The undertaking should incur new cap (Rs 5,00,000) in amount in expandin month (12) from the relevant date Th (b) as follows:-
(a)
(b)
(c)
(d)
The relevant date is the first d March 1992.
The person carrying on the und partnershouldselecta date (me
General of Inland Revenue ast
is important as the undertaking new capital expenditure on th should be notified within 30 Commissioner-General of Inla as the relevant date applicable relevant date.
The undertaking should be app by Minister of Industries as on be published in the Gazette or
The Commissioner-Generals additionally not less than twer The additional twenty five (25
day of the year commencing C have contributed, in respect o.
funds. In order to avail the tax 25 employees during the 5 ye
The tax holiday for 5 years (as was referre attributable to the expansion. The manner of
11

remitted to Sri Lanka.
s from the Expansion of Industrial undertakings.
rtaxholiday to undertakings (Presently in existence) nufacture of goods or commodities. The tax holiday le to the expansion of the undertaking. The Act also and income attributable to the expansion.
vidual or partnership if the following conditions are
bital expenditure of not less than five million rupees g its productive capacity within a period of twelve eterm relevant date is defined in Section 17(F) (3)
lay of any calendar month between April 1990 and
lertaking or in the case of a partnership the precedent ntioned in (a) above) and notify to the Commissionerhe relevant date in their case. The selection of the date will have to incur within 12 months from that date e expansion. The date sclected as the relevant date years of the selection by the undertaking to the ind Revenue. If the undertaking fails to select a date to it, the Act deems 1st April 1990 as the applicable
oved by the Minister of Finance ona recommendation e to which Section 17F applies. The approval should
or before 1st April, 1992.
hould be satisfied that the undertaking has employed ty five (25) employees as a result of the expansion. ) or more employees should be employed on the last in the relevant date. Further, the undertaking should these additional employees, to approved provident
holiday, the undertaking should continue to employ arperiod. -
d to earlier) is in respect of the profits and income computing this is set out in 17 (F) (#) (a) of the Act.
2

Page 123
The profits or income attributable to expansio
Difference between the figures calculated in (
(i)
(ii)
Profits and income of the year of assess such profits and income (which may bes to the inflation prevalent in Sri Lanka;
Annual average profits and income oft date selected by the undertaking (where more than 3 years). If the undertakingha the average of the entire period should
The grant oftax holiday is subject to the conditi incur not less than Rupees Five Million as “ne defined in Section 17 (F) (3) (c) as follows:-
(i)
(ii)
and
Purchase of new productive equipmer capacity of the undertaking.
If the undertaking purchases productive treated as new equipment if the Commiss
(a) the purchase of that productive (b) the purchase price represents the
value of such productive equipment
As this section 17F lays down several conditio proposed to explain the Section by a example.
Example Lanka Biscuit Co. Ltd. is carrying on the busir has decided to obtain tax holiday by incurring selected lst April 1991 as the relevant date and 12 month period from 01.04.9l to 31.03.92.
Lanka Biscuit Co. Ltd. should do the following additional profit:-
(а)
(b)
The Commission - General ofInland Rev date on or before 30th April, 1991.
f
It should apply to the Minister of Indust to the Minister of Finance that the undert:
113

h for a particular year of assessment is:-
i) & (ii) below.
ment reduced by 10% or such other percentage of pecified) by the Minister of Finance having regard and
he three years immediately preceding the relevant the undertaking has been carrying on business for s not carried on business for less than 3 years, then be computed to get the average annual profit.
on that the industrial undertaking should spend or w capital expenditure’. This term of expression is
it which is intended to increase the productive
; equipment which is not new it will nevertheless ioner-General of Inland Revenue is satisfied that:-
equipment is economically justifiable.
fair market
ns as a pre-requisite to obtaining tax holiday, it is
less of manufacturing of biscuits. This Company Rs. 6,000,000 as new capital expenditure. It has I will incur the new capital expenditure within the
in order that it may obtain the tax holiday on the
enue should be notified of the selection of relevant
ties requesting for a recommendation to be made king of the Company should be approved interms

Page 124
of Section 17F. It should also request 1st April, 1992.
(c) It should employ not less that 25 em.
(d) It should continue to employ the add
94, 94/95 & 95/96.
The computation of the profits attributable 1
Profits of Lanka Biscuit Co. Ltd. for the yea
1988/89 RS. 1989/90 RS. 1 1990/91 RS. 2 1991/92 RS. 5
Average Annual Profits preceding the
RS. 100.000 t - RS. 150.000 t - RS
3
(i.e.) Rs... 150,000
Exempt Profits for 1991/92
is Rs. 500,000 - 10% of R
- 150,000 (i.e.) Rs. 500,000 - Rs. 150,0
= Rs. 300,0
2.7 Tax Holiday for Undertakings Engaged i
Section 17. (G) of the Act. grants a three (3) y the operation of an omnibus. The followin holiday:-
(a) The omnibus must be new.
(b) The omnibus should have a seating ca
the driver.
(c) The omnibus should be first registere
January, 1990 but prior to list April,
The section also sets out the method of com
11

that the approval be published in the Gazette before
ployees (additional) by 31st March, 1992.
itional 25 employees in each of the years 92/93, 93/
o the expansion will be dealt with now.
irs from 1988/87 to 1995/96 are as follows.
00,000
50,000
00,000
00,000
relevant date is
200,000
s. 500,000
00 )00
n Transporting Passengers
'eartaxholiday for the profits of an undertaking from g conditions are applicable to the grant of the tax
pacity for not less than thirty (30) persons excluding
d by the Registrar of Motor Vehicles on or after 1st
1992.
puting the exempt profits where the undertaking has

Page 125
operated omnibuses prior to lst January, 1990 vehicles are prepared together. The computatic
EXAMPLE
Lanka Omnibus Co. Ltd. was incorporated in A April, 1990. In April 1991 it purchased 2 new
Profits of all 5 omnibuses Gross Receipts of 5 omnibuses
Gross Receipts of the 2 new omnibuses
EXEMPT PROFITS
115

and the accounts of the omnibus operation of all n is explained in an example below.
pril 1985 and operated3 omnibuses priorto 1st omnibuses.
Rs. 250,000
Rs 1000,000
Rs.. 400,000
400,000 1,000,000 x 250,000
RS. 100.000
مستحسثستـمـثـنتتخذ

Page 126
CHAP
TAX HOLDAY'S GRANTED
Exemption from Income Tax of certain
Section l6C grants a five (5) years tax h. Section l6a and Section 16A of the Inland under Section l6a, to qualify for the tax commenced business after list April, 198l. 16A, the five (5) year holiday will commen ends.
Section loC(2) contains provisions with re case of hotels approved under Section 16 ac
Holiday Inns is a hotel approved under S.1 1981. The 5 year tax holiday under. S.16(a having losses in the last 3 years ending 31
Y/E 31.3.92. - Loss RS 30( Y/E 33.91 - Loss RS 500
Y/E31.3.90 - Loss Rs 70c
Total Loss to be C/F as at 31.3.92. -
(i) Let us assume that the profit of Co. fo
Rs. 1,500,000. Then by virtue of the years commences from 1st April 199
(ii) Let us assume the profits of Co. for commences form list April 1994 by
(iii) Let us assume the profits of the Co.
is Rs. 1,700,000. In this case the 5 ye
Exemption from Income tax to Tourist
Section 16D (introducedby Inland Revenu holiday to tourist hotels (which commence in the period between list April 1992 and
construction of these additional rooms will taxholiday will be granted only if the under
11

TER 20
UNDER ACT NO. 63 OF 1992.
Undertakings of Tourist Hotels.
oliday to Tourist Hotels which were approved under Revenue Act. With regard to Tourist Hotels approved holiday under Section l6C, the hotel should have With regard to Tourist Hotels approved under Section ce after the ten (10) year exemption under Section 16A
gard to the reckoning of the 5 years tax holiday in the fthe Act. This sub-sectionisillustrated by an example.
6(a) of the Act and commenced business on 1st April, ) expired on 31st March 1986. The company has been st March, 1992 and these are as follows:-
),000 ),000 ),000
Rs 1500,000
}r Y/E 313.93 iS
list Proviso to S. 16 C(2)(a) the reckoning of the 5 13
Y/E 31.3.93 is Rs. 1,200,000. In this case the 5 years virtue of the second proviso to Sl6C(2)(a).
For Y/E 33.93
>ars is reckoned from 1st April 1992.
Hotels constructing Additional Rooms.
ue Amendment Act No. 63 of 1992) grants 5 year tax 'd business prior to 1st April 1981), if they construct 1st April 1994 not less than 10 bed rooms, The
have to be approved by the Ceylon Tourist Board. The taking employees more than 25 employees compared
6

Page 127
to the average number of employees in they down a formula to compute the "average nu 1992. This formula for the computation of th an example.
Example :
Negombo Tourist Hotel Ltd., commenced b
The numberof employees in this Company du is given below (for each month).
1. April 91 35 2. May 91 35 3. June 9. 35
4. July 91 35 5. August 91 35 6. September 91 40 7. October 91 40 8. November 91 40
9. December 9. 40
10. January 92 40 11. February 92 40
12. March 92 40,
Average for Y/E 31.3.92 = 455
2
In order to avail of the taxexemption under S1 at least 63 employees (i.e.)25 more than the a number during the period l.4.92 to 31.3.98.
The profits exempted under S 16 D are refer follows :-
Relevant Profits No. of r Total N
Exemption from Income Tax on Profits fr
Section 200 of the Inland Revenue Act g commencing from 1988/89 to undertakings w into an agreement with the G.C.E.C. (now BO exemption to those undertakings which supply of goods or commodities.
117

'ear ending 31st March 1992. The section also lays mber" of employees in the year ending 31st March e "average number" of employees is illustrated by
usiness in April 1980. ring the year from 1st April 1991 to 31st March 1992
= 38 (APPROX)
6D, the Company should employ on 1st April 1992 verage of 38) and continue to employ that minimum
red to as "relevant and profits" and is computed as
Iew Rooms x Profits o. of Rooms
om supplies to BOI enterprises.
rants a tax holiday for any year of assessment nich supply goodsto enterprises which have entered I). The Amendment Act No. 63 of 1992 restricts the to G.C.E.C. (now BOI) concerns engaged in export

Page 128
CHAP
RELIEFS FOR PERSONS
General
Section 85A of the Inland Revenue Actg Company for l0 years (in the case of any ye or 5 years (in the case of any year of as immediately succeeding the year in which 20A (l) ceased. This section is now amenc 1992 extending the 50% rebate from inc exports. It should be noted that Section 20 on by a company or an individual, where:
Section 85A (as amended by Act No. 63
For the year of assessment commencing pi 1987/88 to 1990/91 a certificate has to be o that the net foreign exchange earning from respect of the year of assessment 1991/92 nced notbe obtained from the Export Deve assessment 1991/92 the net foreign excha or more. The Inland Revenue (Amendme provide by Gazette the manner in whic turnover of an undertaking is to be compute the Minister of Finance has prescribed the

TER 21
ENGAGED IN EXPORTS
ranted a 50% rebate from income tax payable by a arofassessment commencing prior to April 1, 1987) sessment commencing on or after April 1, 1987) such Company's exemption under Section 20 (1) or led by Inland Revenue (Amendment) Act No. 63 of some tax payable to individuals were involved in (A) (l) applied to any undertaking whether carried as Section 20 (1) only applied to Companies.
of 1992)
ior to 1st April 1987 and for the years of assessment btained from the Export Development Board stating the turnover of the undertaking is 75% or more (in and subsequent years of assessment the certificate lopment Board. Further beginning from the year of nge earning of the undertaking should be only 25% nt) Act has provided for the Minister of Finance to h the foreign exchange earnings from the export :d. By Gazette No. 701/10 dated 12th February 1992 2 basis. The Gazette is given Appendix - 1.

Page 129
1.
CHAPT
WITH HOLDI
The Inland Revenue Act provides for paym system of withholding at source. At present
(a) Employment income under the PAYE
chapter.
(b) Dividends. This will be dealt with intl
tax for companies.
(c) Interest paid by a bank or financial in
(d) Certain income of Non-Resident Pers
(e) Withholding Tax on Fees paid for prof
Withholding Tax on Interest.
(a) Deduction of Tax
Section 113A imposes a tax of 20 per deposited by a person (who is chargeable a bank or financial institution commencir is defined in Section 113J to mean any pe whose business or part of whose busine deposit and the payment of interest ther financial institution paying the interesto the year of Assessment 86/87 onwards. I Assessment 86/87, the withholding tax of that may be payable to him by any bank deposited. The Inland Revenue Departm financial institutions not to deduct tax fro or financial institution that they are not l must make a declaration to the bank or fin and his or her identity card number. Th ultimately be forwarded to the Inland Re liable, income tax may be imposed. In the is of opinion that the 20 per centum withil a direction in a prescribed from declarin and requesting that the withholding tax reduced rate. The Department of Inlar
19

ER 22
NG TAXES
ent of income tax on certain classes of income by a withholding tax is payable on the following:-
Scheme. This aspect will be dealt with in a separate
he chapters on companies and imputation system of
stitution after 1st April 1986 - (Section 113A).
ons (Section 81A)
essional or other services rendered (Section 113K)
centum on interest payable on any sum of money with income tax under the Inland Revenue Act) with gon of after April 1st, 1986. “Financial Institution son or body of persons, corporate or unincorporate, ss consists in the acceptance of money by way of 2on. The tax is therefore deductible by the bank or nly from persons who are liable to income tax from fa person is not liable to income tax for the Year of 20 percentum need not be deducted from any interest or financial institution with whom such person has 2nt has made arrangements and informed banks and m individuals who make a declaration to such bank. iable to pay income tax. However, such individual ancial institution giving his or her name and address Lese declarations made by a such individuals will venue Department and if such person is found to be case of a person who is liable to income tax but who olding tax is excessive, such person may apply for g his or her income from interest and other sources be deducted not at the 20 per centum rate but at a d Revenue has administratively decided to give

Page 130
(b)
(c)
(d)
directions only at two rates, viz.. zero per institutions are also required to issue to thc a certificate setting out the following parti
(i) Name and address of person from (ii) Gross interest due for the year of a (iii) Rate at which tax is deducted from (iv) Net amount of interest paid after d (v) Identity Card No. of such person.
Credit for tax deducted
Every person from whom withholding ta centum from the interest receivable by su entitled in terms of Section 113 B for cre tax deducted. Where the tax deducted is il fund would be issued to such person.
Duties on Banks and Financial Institution
Banks and Financial Institutions are req interest payable to persons, to the Commis: of the month following the month in which bank or financial institution to remit the w financial institution a defaulter. The provis recovery of tax from defaulters will apply
Issue of assessments on banks and financ
aSSeSSments.
Provision is made in the Act for the issue who:-
(i) failed to deduct the withholding ta
(ii) failed to remit to the Commissione
(iii) fails to furnish a declaration unde
Such bank or financial institution wou penaltiesincurredunder section l 13H. Se
Commissioner General of Inland Reven such assessment. If such bankorfinancial
20

centum or ten per centum. Banks and financial person from whom withholding tax is deducted culars:
whom interest is deducted.
SSeSSment.
that person.
eduction of tax.
x is deducted either at 20 per centum or 10 per Ich person from a bank or financial institution is dit against the tax payable by Such person for the l excess of the amount payable by such person, a
uired to remit the with holding tax deducted fro sioner-General of Inland Revenue before the 15th the deduction was made. Failure on the part of the vithholding tax deducted will make such bank or ions of the Inland Revenue Act with regard to the
to such banks or financial institutions.
ial financial institutions and appeals against such
of assessment on banks and financial institutions
x from any person
:r - General the withholding Tax deducted.
section 11 3D.
d be required to pay the tax deducted and any ction 113 G. has made provision for appeals to the ue by such banks or financial institutions against institution is aggrieved by the assessments. If such

Page 131
(f)
bank or financial institution is aggrei Revenue Act with regard to appeals a would apply to these assessments.
(e) Penalty for default
Section l 13H provides, thatbanks and fi tax deducted within liš days of the month to the tax a penalty computed as follows
(a) penalty of 10 per centum of the ta.
due.
(b) If paid after a period of 6 months
per centum of the tax.
There is, however, provision for the Com penalty under this scction if such bank of Commissioner General that the failure t control.
Withholding Tax on Interest from Treasury
The Inland Revenue (Amendmcnt) Act of reccived by a person in respect of withholdi a Treasury Bill (other than a Treasury Bill withholding tax varies with the period of ma and are as follows:-
Column I
Treasury Bill Rate Any treasury bill which matures in twelve months after the date of its issue.
that treasury bill whichever is the less
Any treasury bill which matures in six months after the date of its issue.
Any treasury bill which matures in three months the date of its issue
121

ed by the assessment, the provisions of the Inland gainst assessments contained in sections 117 - 122
ancial institutions who failed to paythewithholding in which the deduction was made, to pay in addition
: if paid within six months of the date in which it is
rom the date when it is due, a further penalty of 15
missioner - General of Inland Revenue to waive the financial institution proves to thc satisfaction of the ) pay the tax was due to circumstances beyond their
Bills
89 has provided for a withholding tax on interest ng tax on interest received by a person in respect of neld by the Central Bank of Sri Lanka). The rate of aturity of the Bill. The rates are specified in the Act
Column II
20 percentum of the interestor
discount on that treasury bill or
2.5 percentum of the face value of er amount.
20 percentum of the interest of discount on that treasury bill or l.25 percentum of the face value of that treasury bill, whichever is the
the lesser amount
20 percentum of the interest or discount on that treasury bill or 0.625 percentum of the face value of that treasury bill, whichcver is the lesser amounty

Page 132
3. Withholding Tax on Fees paid for Professio
Section 113 K of the Inland Revenue (Amend tax on 'specified fees’ paid to any person o
(a) (b) (c) (d) (e) (f) (g) (h)
Company
Corporation
Individual Body of Persons Local Authority Government Department Association Society of Persons
The with holding tax has to be deducted at “specified fee’. The term “specified fee' is
'specified fee' means any sum p services rendered by any person o of any profession or vocation, or on or exercised by such person or and includes any commission, bro specifical person but does not incl employee of such specified persc person.
The deduction has to be made only if the pay or has paid or credited in the year immediat
(i)
(ii) -
aggregating to not less than Rs.3 or partnership,
specified fees aggregating to no as consideration for Services re other activities of an independer or other sum of a like nature. employer pays salary or other r(
MODE OF PAYMENT
The tax deducted should be remitted to the month following the month in which the de
Cheques/Money Orders should be drawn inf and sent with a copy of the Certificate of ded
12

al and other services.
ment) Act. No. 63 of 1992 introduced a withholding partnership by the following:-
3% of the fees paid which is defined in the Act as lefinedas follows:-
layable by any specified person as consideration for rby any partnership, as the case maybe, in the course other activities of an independent character carried any partner of such partnership, as the case may be, kerage or other sums of alike nature payable by such ude any sum payable by such specified person to any n in the course of employment under such specified
er is likely to pay orto creditin that year ofassessment ely preceding that year of assessment sums.
),000 to any other Company, person, body of persons
tless than Rs. 250,00 indered in the course of any profession vocation or t character and includes any commission, brokerage he withholding tax is not to be deducted when an muneration to his employees.
Department of Inland Revenue by the 15th day of the duction was made.
vour of the commissioner General ofInland Revenue ction, to the deputy Commissioner, Withholding Tax
2

Page 133
Branch, Department of Inland Revenue, Co
The Certificate of deduction should be in the follow
(i) Name and address of payee.
(ii) The file number or payee
(iii) The Identity Card number orth
(iv) Nature of the service rendered. (v) Gross amount of payment and t (vi) 3% withholding tax
(vii) Net amount of payment
(vill) Cheque No. Order No. The namr
(ix) Name and address of Payer
(x) Signature of Payer
The Act also provides penalties for failure to deduct
Penaltics for delayed payments are l0% in 30 days subject to a maximum of 50%. Whe for the entire amount of the tax he was requ
(a)
(b)
Withholding tax on certain income of Non
Any person who makes a payment to rendered in Sri Lanka, is required to The recipient of such an income is entil by him. Where an excess has been de
Any person who makes a payment to a as rent, ground rent, royalty or annuity Lanka or out of income arising in Si income tax at 33 1/3% or at any rate Revenue having regard to the total ta Where there is a Double Tax Agreeme the Governmentofany other territory i income, is resident, the withholding Agreement.
12

ombo 2.
ing form:
: Business Registration number (if available)
he date of payment.
le of the Bank Branch.
the tax as specified in the Act.
the first month and an additional 2 percent for every n a person failed to deduct, such person will be liable ired to deduct.
Resident Persons.
a foreignentertainer or artiste in respect of services withhold income tax at a rate of 33 1/3%. led to set-off the deduction against the taxes payable ducted he will be entitled to a refund.
(section 81A)
ny person or partnership out of Sri Lanka, a sum due which is payable either in respect of property in Sri i Lanka, is required under section 8l, to withhold specified by the Commissioner General of Inland c payable by the recipient of such an income. ntin force between the Government of Sri Lanka and n which the person orpartnership who receives above tax rate applicable is the rate specified is such

Page 134
CHAPT)
POWERSO
The power to search buildings or places was enacted were introduced into thc Sri Lanka Income Tax Law when Kaldor's tax proposals were introduced. Th Ordinance. Later the same section was incorporated The present law is contained in Section 16.1 of the section the Commissioner-General of Inland Reven under the Inland Revenue Act to enter and search an articles, books of acc or other documents are fou books of accounts of er documents. 'Article' is de money order, a traveller's cheque, a letter of credit, a a precious stone and stock in hand. The officer carry the authority to do any of the following acts:
(a) question any person found in such premisc Revenue Actor with regard to the ownership
(b) seize and deliver to the Commissioner-G documents or cause them to be guarded fol
(c) place marks of identifestion any such arti
extracts therefrom.
(d) make a note or an inventory of any otherth in the officer's opinion to any proceeding u
The Commissioner-General is expected to record thi a building or place prior to authorising any officer to search was carried could be seized and delivered by in no other case :-
(a) Tax payable (including Income Tax, We Turnover tax) by the owner of such article
(b) The officer is satisfied after investigation ti owner out of income in respect of which in
Example. On a search of premises if foreign currency if the owner establishes that it is out of funds earned cannot be seized. They can however be seized if the ( officer carrying out the search delivers it to the Com the owner has either arrears of tax to pay or if the Co
12

ER 23
F SEARCH
in the Indian Income Tax Law in 1956. These powers then Ceylon Income Tax Law) by Act No. 13 of 1959 e original scction was S. 9l A of the Income Tax in S. 126 of the Inland Revenue Act. No. 4 of 1963
inland Revcnue Act No. 28 of 1979. In terms of this ue is empowered to authorise any officer appointed y building or place where in the opinion of the officer hd. The officer has the power to examine such articles, fined to include cash, foreign currency, postal order. bill of exchange, a promissory note, gold, jewellery, ing out the search by virtue of the authority has also
's with regard to any matter arising under the Inland ) of any articles, book of accounts or other documents.
eneral any such articles, books of account or other r effecting delivery.
cles, books of accounts or other documents or make
ing found in the course of the search which is useful Inder the Inland Revenue Act.
2 circumstances which has necessitated the search of search a place. Articles found in the place where the the officer only in the following circumstances and
alth Tax, Gift Tax, Estate Duty, stamp Duty and is in default.
hat the article found there has been purchased by the come tax is payable but has not been paid.
y of US Dollars One Hundred Thousand is found and abroad (on which no income tax is payable) these bwner has tax arrears to pay. The article seized by the missioner-General. If the article seized is cash and if mmissioner-General is of opinion that tax is payable
4.

Page 135
on such cash, the amount so necessary for the paymer be appropriated out of the cash so seized and the balar cash the Commissioner-General will retain such artic the case may be) is paid or arrangements are amde by General. The owner is given six months time to payti the payment. After the expiry of six months Commis public auction and recover the taxes. Any excess ove
The provisions of the law with regard to searches have during the last 35 years in which period the Departm This fact alone goes to show that these powers have Inland Revenue with great care. In India however
provisions. In the case of Senairam Doongarmal Age held that on the facts the action taken by the lincome TI taken in spite of the fact that there were no charges
authoritics which could give rise to a reasonable be searched. The search was conducted in a high handed a large number of documents were seized irrespectiv Two of the judges Nayudu J. and Dutta J. went on to
Nayudut J. and Dutta J.
No principles have been laid down in the Act wh under Section 37 (2). There is no right of represer The power under Section 37 (2) could be exercis but against any person including total stranges wi the action. These restrictions cannot be regarded
The second case is that of Seth Bros. v. Commissioner the following observation:-
"The plan of section 132 (similar to Section 161 of the Initially the Commissioner receives certain informati When the Commissioner has reason to believe that re raid, he authorises an Income Tax Officer to make a Officer proceeds to search a building or place. During documents, as in his opinion, would be useful for any proceedings the Commissioner and the Income Tax ( relevancy of documents or purpose of proceedingsu
Section 132 of the Act does not contemplate a fishing
and the Income Tax Officer ought to have a fairly clea a certain place.
125

toftax arrears or other tax (as the case maybe) will ce will be returned to him. If the article seized is not le in his custody till the tax arrears or other tax (as the owner to thc satisfaction of the Commissionerx arrears or other tax or to make arrangements for sioner-General is empowered to sell the article by r the tax arrears is returned to the owner.
otcome for interpretation by the Courts in Sri Lanka 2nt of Inland Revenue has exercised these powers. been exercised by the successive Commissioners of certain decisions have been pronounced on these ncy V. K. E. Johnson (1964) 52 I. T. R. 637 it was ax authorities wasnala fide. In this case action was of evasion and no materials were disclosed by the lief that documents would be found at the places manner with the use of armed forces of police and e of whether they would be helpful to thc enquiry. State.
ich could serve as a guidc to the exercise of powers
tation of appeal against an order under the Section.
ed not merely against assesses or intended assesses
thout their being given any opportunity to object to
as reasonable."
of Income Tax 62 I.T.R. 446 where the judges made
Sri Lanka Act) rule 112 and Form 45 is as follows:
on which makes it expedient to organise a search. levant documents can be recovered by arranging a search. When he is so authorised, the Income Tax g the search the Income Tax Officer can seize such oroceeding under the Act. At different stages in the Dfficer have to apply their mind to the question of der the Act.
nquiry. Before starting a search the Commissioner idea as to which documents have to be seized from

Page 136
In a special case it may become inccessary to prepai cases would be rare. Where it does not appear tha proceeding under the Act, to prepare an inventory of embarrassment to the owner."
Held that in view of all these circumstances, the sear between the assessee and the officers concerned, t Section 132 of the Act and their action was mala fid on the Income Tax Officers by Section 132 and the be quashed by the High court by issuing Writ of M
The decision of the Indian courts have held that a se reasonable grounds for believing that a search was n not otherwise be obtained without undue delay and
In the case of Ganga Prasad Maheshwarivs. C.I.T. (1 precedent for action under Section 132 (similar to o of the Directors of inspection of the Commissioner (e in consequence of which he should have reason to bel bullion, jcwellcry or other valuable article or thing either wholly or partly undisclosed income. If any of can have no jurisdiction to proceed. The informatio (iii) and (iv) so as to empower the authority concern (ii). "Reason to believe" has been considered to be t by the officer concerned. It is made up two words "rea or justification and the word "believe" means to acce or accepts a fact to exist there must be a justificatior the final conclusion arrived at by the officer concer information received. But the reason duc to which th it is said that the reason to believe is not open to scr by the officer concerned is immune from challenge, or it cannot withstand the test of reason, which is an is empowered to strike it down.
In another case decided by the Indian Courts - Jain a following observations were made :
"The formation of the belief that the factors mentio present is a condition precedem to the authorisation However, the belief cannot be a mere pretence nor ( of "reason to believe" and not "reason to suspect" or to reach the beliefby a processakinto ajudicial proce or quasi-judicialact;noris theissuancc ofan authori is bona fide and is cogently supported, the court wi

e an inventory of ornaments during search. But such t an inventory of ornaments would be useful for a brnaments can cause unnecessary inconvenience and
h was notbona fide one. Though there was no illwill, e extent of the scizure was far beyond the limits of : in the sense there was abuse, of the power conferred search was mala fide, the proceedings were liable to undamus.
arch would be valid if (i) the empowered official had 2cessary (ii) he believes that the required object could (iii) he records his reasons in writing.
983) 139 I.T.R. p. 1043, it was held that the conditions ur Section l 6 l) are (i) information in the possession quivalent of Commissioner General in Sri Lanka) (ii) eve (iii) that any person is in possession of any money, (iv) and such jewellery, bullion, etc. must represent these conditions is not fulfilled the officer concerned mentioned in condition (i) must relate to conditions ed to reach the conclusion contemplated in condition he most salutary safeguard on the exercise of power son" and "to believe". The word "reason" means causc pt as true or have faith in it. Before the officer has faith 1 for it. The belief may not be open to scrutiny as it is ned as a result of mental exercise made by him on the e decision is reached can always be examinca. When utiny, what is meant is that the satisfaction arrived at out, where the satisfaction is not based on any material integral part of it, then it falls through and the Court
und Jaln vs. Union of India (1982) 134 I.T.R. 655 the
led in Section 132 (1) of the Income Tax Act 161, are of search and seizure. It is basically a subjective step. an it be a mere doubt or suspicion. Section 132 speaks "reason to doubt". It is not necessary for the authority ss. His reasons and his beliefdo not constitute ajudicial sation a judicial or quasi-judicial function. If the belief Il not interfere therewith or sit in appeal over it."
26

Page 137
The function of the Director of Inspection acting u function. The Director if Inspection acting under Sec the Act or the rules providing for the supply of a c assessee. All that the law requires is that the authorit search and/or the seizure. The law does not require document or paper, etc. In the absence of mala fide accepted and the search and/or the seizure cannot
authorisation was in terms general and not specific a search, seized materials and documents which were u to be not that relevant".
In another case decided in 1982-Lit Light and Compa warrant by the Commissioner is not a judicial or q enjoincd to issue a warrant only when in fact there is which he may form the necessary belief, the matter i case the original record of the department submitte, that was made available to the Commissioner befor The statement of the main informant, who had in pctitioners, was recorded on oath and the material sho reason to believe that the persons were in possession partly undisclosed income.
In a case decided by the Patna High Court in 1987th the action taken against the taxpayer was in contravi Income Tax Act 1961, the High court made the follo Chemicals v C.I.T. (1987) 166 I.I.R. 67 Patna High
"Action under Section 132 of the Income tax Act information in the possession of the Income Tax Commission of Income Tax or otherauthority mentio) oncerned would not produce or cause to be produced properties in his/its possession for purposes of ass condition precedent and the Section does not permit pehonest and based oncogent material. It is within thc o find out if such a reasonable belief existed. Reasor shown to the Court that there was satisfactory beliefa taken is violative of the provisions of the Act, a writ w v oid ab initio"
This decision of the High Court of Patna illustrates satisfied that the assessee whose buildings or premise l6l (2) of the Inland Revenue Act requires that the record the circumstances which necessitate the exerc of the provisions of the law are liable to be declarec
12

inder Section 132 is not a judicial or quasi-judicial tion 132 is nota court. There is no provision in either opy of the warrant of authorisation of search to the y must be produced before the commencement of the : a warrant of authorisation to mention any specific s, the judgement oft he authorised officer should be be invalidated by the mere fact that the warrant of nd/or that the authorised officer, in the course of the ltimately on analysis and further investigation, found
nyvs. C.I.T. 513, it was held that the issue of a search
uasi-judicial act. And even if the Commissioner is information in his possession and in conscquence of s not thereby subject to scrutiny by the Court. In this d for perusal by the Court contained the information e he issued the warrants of authorisation for search. timate knowledge of the business dealings of the wed that the Commissioner of Income Tax could have of money, bullion etc. representing either wholly of
e orders of search and seizure were quashed because ention of the provisions of Section 132 of the Indian wing observations in the case of Pawan Solvent and
Court).
961 for search and seizure only in consequence of Department that the Director of Inspection or the ned in the Section has reason to believe that the person ibooks of account or would not disclose income from cssment. In other words, the reasonable view is a
in discriminate search and seizure. The belief must 2 competence of the High Courtin its Writjurisdiction ns are matters of subjective satisfaction but it must be nd the matter is justiciable. If it is found that the action till issue to declare the entire act of search and seizune
very clearly that Income tax Authorities should be
sare searched has not declared his/its income. Section Commissioner General of the Inland Revenue shall ise of the powers of search and seizure Any violations
by Courts as void.

Page 138
CHIAPT
Tax Plananing, Tax Avoidance and tax Evasion:
1.
Tax Planning may be described as a proc oftaxpayers so thatas faras legally possible to income and other taxes is minimized.
“Tax Avoidance' means transactions whi however artificial, are real transactions an
“Tax Evasion means transactions or schem in avoiding on non-disclosure or wrongful
“Tax Planning includes circumstances in has merely selected a certain course of specifically prohibited in law and has imple difference bctween tax planning and tax undertaking activities directed to taking ad statute or in implementing legal procedu authoritics, while the latter, though still rel to improper or unacceptable results.
The distinction between tax avoidance an Committee of Tax Inquiry in India and is
“In an acquisitive society it is more comm to seek all possible means to escape it. T therefore, is largely dependent on the differ instances of merely availing strictly in accol offered by the Government. Others ar. misrepresentation of facts, falsification o represents what is truly tax planning, the lat there lies a vast domain for selecting a varic the requirements of law in fact circumvent is these methods which constitute tax avoi
Tax Planning/Tax Avoidance:
Unlike in other tax jurisdictions where spe the tax statutes, SriLanka has only one provi
in section 9l which is in the following terr
Where an Assessor is of opinion that anyt of reducing the amount of tax payable by
12

ER 24
ess of organizing the affairs of a taxpayer or a group , the liability of the taxpayer ora group oftaxpayers
ch are entered into to avoid or minimize tax, and d within the law.
leSWhichare unlawfulrelying for their effectiveness | disclousure.
which ataxpayer is seeking the beneficial result and action that is either clearly provided for or not mented that decision in a real way. Presumably the avoidance is that thc former considers either in ange of specific incentive provided for in the taxing res in order to seek results acceptable to the tax ying upon permissible and legal procedures, leads
d tax evasion is best brought out by the Wanchoo in the following terms:-
on for taxpayers to regard taxation as a burden and he distinction between evasion and avoidance, ence in the methods of escape resorted to. Some are dance with law, the tax exemptions or tax privileges 2 manoeuvres involving an element of deceit, f accounts, including downright fraud. The first ter evasion. However, between these two extremes 2ty of methods which though technically satisfying it with a view to eliminate or reduce tax burden. It dance.
cific anti avoidance provisions are incorporated in ision in the Inland Revenue Act and this is contained
S
ransaction which reduces or would have the effect any person is artificial or fictitious or that any

Page 139
disposition is not in fact given effect to, he ma and the parties to the transaction or dispositio In this section “disposition includes any trus
This section has not been construed by the Cour that if the Assessor were to invoke this section that has been entered into by such person and amount of income tax payable the following c
(a) Such transaction should be “artificial
ΟΙ
(b) The disposition has not been given eff
The term “disposition is defined in that section or arrangement.
Where the Assessor attacks the transaction as a that such transaction is fictitious or artificial. dcs inca in the Act. In other words a transactio classical definition of the phrase sham tran Diplock in Snook vs London West Riding Inv following terms:-
“For Acts and documents to be sham, with wh all the parties thereto musthave a common inten the legal rights and obligations which have giv is therefore a fiction, a deceit, a nothing, some no reality. Sham requires that both parties to th bound by the legal rights and obligations which be seen that if parties enter into transactions for will be impossible".
The major development in thee field of tax av by two decisions of the House of Lords. The fi (54 TC l0l) decided in March 1981 and the se decided in February 1984.
The earlier case of W.T. Ramsey v. Commissi a time when the market had been flooded fo avoidance schemes. Some ofthcse schemes wel substantial gains liable to income tax or cap countervailing loss to eliminateliability. In Ram am artificial loss for capital gains tax purposes off againstan anticipated real chargeable gain. I on whether part of the avoidance scheme itsel
129

y disregard any such transaction or disposition n shall be assessable accordingly. t, grant, covenant, agreement, or arrangement.
ts in Sri Lanka. Ananalysis of this section shows against a person with regard to any transaction which transaction has the effect of reducing the :onsiderations will apply:-
or “fictitious'
ect to.
to include any trust, grant, covenant, agreement
rtificial or fictitious, the onus is on him to prove
The terms “artificial and “fictitious are not n is treated by him as 'sham’ transaction. The saction is to be found in a statement by Lord estments Ltd., (1967 1 AER 518 at 528) in the
latever legal consequences to follow from this, tion that the acts and documents are not to create en the appearance considered correct, Asham thing apparent on the surface which in fact has e transaction never intended to rely upon or be the parties purport to establish. It will therefore legitimate purposes, to disregard them as sham
bidance in the U.K. in recent years was marked rst decision is that of Ramsey Limited v C.I.R. cond is that of Furniss v Dawson (55 TC324)
pners of Inland Revenue (1981) was decided at r a number of years with mass produced tax eaimed at the taxpayer who had already realised ital gains tax and were designed to create a say, an avoidance scheme was devised to create which, it was hoped, would be available for set
In the lower courts, argument focussed primarily

Page 140
Produced a chargeable gain. However, in the attack upon the whole series of transactions w should be disregarded as a fiscal nullity, A (including our old friend the Duke of Westmi that were a scheme is pure tax avoidance the one is entitled to look at the overall effect of a attach fiscal consequences to one step in isola approach injudicial attitudes to circumstance However, it was not until February 1984 and Dawson that the extent and implications of clarification.
In Ramsy, the principle had been used to over the capital gains tax legislation by looking att circumstances. The facts of Furniss V Daw, Ramsay because the scheme was designed to enduring legal consequences, not circular or s of transactions, described as a simplc and h Brightman, were arranged in order to defer cap family companies. The scheme involved an ex companies for shares in an Isle of Man compa as a receptacle for the proceeds of sale whent purchaser. The scheme relicd on the specific purposes, what would otherwise have been company, would not be treated as such until : in the Manx company.
The House of Lords provided some clarity on by defining its limits. Two limitations were n
l. There must be a pre-ordained series of
and
2. There must be a step or steps inserted ti
from the avoidance of a liability to tax
It was held that if these two factual ingrec disregarded for fiscalpurposes. Thus fiscalcon intended to operate as such are generally asce a whole. It is the appellate Commissioners (the in making these two findings of fact since tlh decision on facts where it is insupportable on
The decisions of the House of Lords in Ram marks a major change in judicial attitude tow
30

House of Lords, Crown mounted a fundamental hich comprised the scheme (s), claiming that it After due consideration of previous decisions nister), the five Law Lords unanimously agreed n, although each step is genuine and not a sham, series of inter-dependent operations and not to tion. The case was heralded as developing a new is in which tax avoidance motives were present. the decision of the House of Lords in Furniss v the principle received further explanation and
ride the express definition of losses and gains in he totality of the scheme and at the surrounding son were significantly different from those in defer tax not to avoid it and it was a scheme with elf-cancelling as in Ramsay. In Dawson, a series onest scheme in the leading judgement of Lord pital gains tax liability on the sale of shares in two change of the Dawson family’s shares in the two iny set up to serve as a vehicle for the shares and he shares were sold in due course to the ultimate provision which stated that, for capital gains tax a disposal by the Dawson family in the Manx such time as the family disposed of their shares
the rationale of the principle outlined in Ramsay oted for the principle to apply, being:
transactions or one single composite transaction,
nathave no commercial (business) purpose apart :- even if such step(s) have a commercial effect.
lients existed, the interested step(s) are to be sequences of a pre-ordainca series of transactions rtained by considering the results of the series as : first appeal tribunal) who will play a crucial role e courts will only disturb the Commissioners’
the basis of the primary facts and evidence.
say casc (1981) and Furniss v, Dawson (1984) 'ards tax avoidance schemes in the United

Page 141
Kingdom. The limits of the principle have not (19873 AER 27) it was held that the new app1 would not be extended to cover a composite ti facie secured a tax advantage but where
(i) there was at the outset a possibility t
completed or
(ii) the taxpayer had a dual purpose in impl
the avoidance of tax.
In conclusion, it may be stated that tax pl preparation to be effective.
Tax Evasion:
The Sri Lanka tax legislation (Inland Revenue non-disclosure of income, for incorrect returns Section lis6 of the Act, provides that stateme arising undcrthe Act or documents produced sh against such person under section 151 or 153.
131

een determined. In the case of Craven v, White oach to pre-ordained tax avoiding transactions ansaction carried out by a taxpayer that prima
hat the steps in the transaction would not be
amenting the transaction only one of which was
inning or tax avoidance will require careful
Act No. 28 of 1979) provides for penalties for of income and for fraud. (Section lsland 153).
nts made by a person in relation to any matter all bc admissible in evidence in any proceedings

Page 142
CHA
UNILATERAL RELEF
Section 84A was introduced by Inland Revenue (An from Sri Lanka income taxpayable by a non-reside (This section has been amended by Inland Revenue (Amendment) Act No. 35 of 1993). The releif gran over any income tax payable for the correspondin below. Where the person or partnership is not liable the full taxpayablreby the person or partnership isg basis:
(a) For the year of assessment 1991/92 and subse and partnerships registered outside Sri Lank areas specified by the Commissioncr General. No. 750/4 of 20th January 1993 has speci Consultancy Services to be entitled to the rel
(i) The Plantation Industry (ii) Developmentand provision oftelecon
(b) For the year of assessment 1992/93 and subs
registered outside Sri Lanka which provide
(i) Architectural -
(ii) Engineering (iii) Quantity Surveying (iv) Construction Management (v) Other services ancillary to the above
to a resident Company which has cntered into an a under Section l7 of the Board of Investment Act No have invetsed in Sri Lanka not less than 50 millic currency to meet the cost of:
(a) anu building purchased or constructed and of
(b) the acquisition of any assers not included ir
The releif is also granted to non resident persons
provide in Sri Lanka to nay other non-resident pe services mentioned in the last paragraph) and such

TER 25
FOR DOUBLE TAXATION
hendment) Act No. 49 of 1991, granting unilateral releif nt person ora partnership registered outside Sri Lanka
(Amendment) Act No. 63 of 1993, and Inland Revcnue led is the excess of the income taxpayable in Sri Lanka g period in the other country on the income specified to pay income tax in the other country on such income. rantcd as relief. This relief is available on the following
quent years the relief is granted to non-residen persons which provide management consultancy services in of Inland Revcnue and published in the gazette. Gazette ifica the following two categories of Management ief under section 84A
nimmunication services based on computer technology.
cquent years to non resident persons and partnerships he following services -
greement with the Board of Investment of Sri Lanka ... 4 of l978. The residcnt Company in Sri Lanka should In U.S. Dolors or its equivalent in any other foreign
any land, plant, machinery or furniture purchased and,
(a) above and used by the undertaking.
and partnerships registered outside Sri Lanka which
‘rson or partnership registered outside Sri Lanka (the n person or partnership has agreement with the BOI.
32

Page 143
CHAPT
SRI LANKA"S DOUB
Sri Lanka openend the doors to foreign investment encourage foreign investment, Sri Lanka concluded are 24 tax treaties in force (see Table l). The latest
Historically, the earliest tax treaties were with India, were concluded in 1950. Sri Lanka was colony u independence in 1948. The tea and rubberplantations in the United kingdom and which were subject to taxa was hence anccessity to relieve these companies of Lanka and India were neighbouring countries anc neighbouring countries and there was investment by for entering into a tax treaty with India. The tax treat new foreign investment from that country.
Most of the other tax treaties were entered into after The main objectives of Sri Lanka entering into tax t
(l) To remove tax barriers to the international flo
(2) To promote caital invenstment in the country b integrated with the tax laws of the other coub
(3) To promote transfer of technology which wo
(4) Te reduce harassment of foreign taxpayers by
(5) To establish a consultative mechanism betwe fiscal evasion.
Basic Priniples For Granting Relief
In the tax treaties concluded by Sri Lanka, both the f have been followed. In terms of the foreign tax credi tax as though it were a tax paid itself. Where the forei of the domestíc tax over the foreign taxís payable ír higher, no tax is collectible in the country of residenc tax is collectible in the country of residence. The effec of the domestic or foreign tax rate. The foreign tax ( example, with Australia, Canada, India, Sweden and
3

ER 26
LETAXTREATIES.
in 1977 with the change of government. In order to tax treaties with several countries. As of today, there tax treaty concluded by Sri Lanka is with Australia.
Sweden and the United kingodom. These tax treaties nder Britain from 1815 unitl the country attained in Sri Lanka were owned by companies incorporated tioninboth the United Kingdom and Sri Lanka. There double taxation. As far as India was concerned, Sri there was concerned, Sri Lanka and India were residents of India in Srilanka. Hence, the necessity y with Sweden was concluded in order to encourage
1980. reaties are:
»w of trde, investmentand technical knowledge.
y providing tax incentives which could be adequately try by the tax treaty mechanism.
uld be useful for economic development.
creating a climate of confidence among investors.
:en the two tax administrations and thereby prevent
oreign tax credit method and the exemption method t method, the country of residence treats the foreign gn tax is lower than the domestic tax, only the excess the country of residence. Where the foreign tax is :e. The effective overall burden of tax is higher, no tive overall burden of tax is determined by the higher redit method has been followed in the treaties, for the United Kingdom.

Page 144
In the contrast to this, treaties with France, Germany, method. Under the exemption method, income exempt of tax to be imposed on the taxpayer's other income
Some treaties also provide for a tax-sparing credit. T the transfer of capital and technology.
The effect of the tax-sparing provision is that tax exel been paid and consequently becomes eligible for c ensured that the bencfits of tax incentives provided b of thc country of then residence. In several of thc
example, Australia, India, Pakistan, Romania and th
Permanent Establishment
One of the most imprtant concepts in tax treaties is tha in tax treaties is that an enterprise of one country wi it caries on business through a permanent estab. importance of an office or fixed place of business fo also includes a depcindent agent who habitually exe contracts on behalf of the enterprise. On the other h; or other genuinely independent agent would not be The emphasis is on the physical presence of a "fixed b and the active operation of business.
The trend in developed countries has been gradually establishment. This encourags the expansion of trad tax liability. But this would adversely affect revcnuc In vocw of this, the less developed cpountries preser: of "permanent establishment".
Sri Lanka has in recent tax treaties incorporated para that:
(a) a building, site or construction, assemb connection therewith, but only where such site, proic months.
(b) the furnsihingofservices, including con or other personnel engaged by the cnterprise for su continue for the same or connected project within the six months within any l2 month period, will be trea
Thc list of activities which qualify as a permanent es with Australia and the Philippines. In terms of bothe
l

the Netherlands and Poland follow the tax exemption tedis not taken into consideration for the determination
The provision of a tax-sparing credit gives a boost to
mpted in the source country would be deemed to have :redit in the resident country. Foreign investors are y Sri Lanka accrue to them rather than to the treasury treaties, a tax-sparing credit has been provided, for he United Kingdom
ut of permanent establishment. the basic rule accepted Il be liable to income tax in the other country only of lishment. The standard definition emphasises the or the regular transaction of business. The definition :rcises a general authority to negotiate and conclude and a bona fide broker, a general commission agent included in the concept of permancnt establishment. ase" or "a depcndcntagent", the continuity of activity
y to restrict the scope of the definition of permanent e since it permits a greater range of activity without in the case of less developed countrics like Sri Lanka. an expansion rather than a restriction of the definition
3 of art 5 of the United Nations Model thus ensuring
ly, or installation project or supervisory activities in :ct or activities continue for a period of more than six
Sultancy Services by an enterprise through employees ch purpose, but only where activities of that nature country for a period or periods agrregating more than ted as a permanent establishment.
tablishment has becn expanded in recent agreements these agreements, an enterprise shall be deemed to
34

Page 145
have a permanent establishment in one of the cont permanent establishment if substantial equipment is the enterprise.
In the majority of the tax treaties, the parapraphs to a adhere closely to the United Nations Model. Two sign One is the exlusion from the list of activities not cl facilities solely for the purpose of delivery of goods ( most tax treaties leave out the paragraph dealing wi
Business Profits
The business profits of a foreign enterprise are taxab contracting state. If the foreign enterprise has a perma enterprise is liable on the profits attributable to thc provide for the extension of the taxing rights of the s or merchandise of the same or similarkind as sold thr activities carried on therein of the same or simil establishment. This rule is known as the "force of attr all sources in a country, where the foreign enterpris tax in that count try. This force of attraction rule is i Finland, India, Pakistan, Romania and Sweden.
The tax treaties also set out the basis of determining of a permanent establishment have to be ascertainct dealing at arm's length with the enterprise of which have to be determined allowing the deduction of allex expenses. There is, however, a prohibition with re reimbursements) made by the permanent establish enterprise by way of royalties, fees or commissions. A in respect of banking enterprises Similar payments re office or any other office of the enterprise would th
The articles on permanent establishment and busine. fair sharing of the profits between the hose country a a degree of certainty and definiteness regarding the
Dividends, Royalties & Interest
Dividend, royalties and interest derved by a non-res tax under Sri Lanka's tax law. The rate of withholdin in Sri Lanka who pays or cedits to any non-resident tax 33 1/3% of the gross amount of the interest roya
Under the tax treaties, the rate of tax on interest and in usually restricted to 10%. In the case of dividend
135.

racting states and to carry on business through that being used in the state by, for or under contract with
gents, dependent or otherwise, of a foreign principal ificant variations are found in some of the tax treaties. assified as a permanent establishment of the use of or marchandise belonging to the enterprise, Secondly than insurance enterprise.
e only if it has a permanent establishment in the other nentestablishment in the source state, then the foreign ; permancnt establishment. Some of the tax teratics ource state to the profits from sales therein of goods ough the permanent establishment and other business ar kind as those effected through the permanent action rule. in trems of this rule, income arising from e maintains a permanent establishment, is subject to incorporated in the treaties with Australia, Denmark,
the profits of a permanent establishment. The profits d on the basis that it is a separate and distinct entity if is a permanent establishment Secondly, the profits penses including executive and general administration gard to the deduction of payments (unless they are ment to the head office or any other office of the .n exception to the prohibition of deduction is allowed ceived by the permanentestablishment from the head emselves not be included in its profits.
ss profits in the treaties are designed to provide for a nd the country of residence. In addition, they provide tax implications. of transnational operations.
ident persom from a Sri Lankan source are liable to g tax applicable to all dividends is 15%. Any person person any interest or royalties is required to deduct lties.
royalties paid to residents of a treaty partner country
paid to residents of a treaty partner country, the

Page 146
maximum rate of tax is generally lis%. Where the b holds at least 25% of the capital of the company pay in a few of the treaties, the maxium rate of tax in th on royalties at 15% or20% (see Table 2)
Exemption from tax in the source country for royalti or reproduction of nay literary, artistic or scientific United Kingdom. Under several treaties, interest ari the interest is paid by the government of that state c state. The exemption of interest is, in some of the trea of the treaty partner country or in certasin specified
The tax treaty articles dealing with dividends, inter states that the reduced rates or the exemption are no the source country a permanent establishment or indebteness or the royalty pamentis effectively con are treated as the income of the permanent establish
The articles dealing with interest and royalties includ relationship exists between the payer and the recipie such a relationship, the interestor royalties exceedth an arm's length transaction. The balance is taxable applicable or, in the absence of such a tax treaty, a
The tax treaties provide exhaustive definitions oft income from debt-claims of every kind, whether or a right to participate in profits. The term "royalty" has as a consideration for the use of, or the right to use. including cinematograph film or films or tapes used mark, design or model, plan, secret formula or pro commercial or scientific equipment or for informa experience.
Interest and royalties are deemed to arise in a contr
(i) the contracting state, a political subdi (ii) a resident of the contracting state.
They are also deemed to arise in a contracting state permanent establishment in that country.
Independent & Dependent Personal Services
The tax treaty articles set down the conditions or crit to be liable to tax in the other treaty partner country (
13

eneficial owner of the dividends is a company which ing the dividends, the maximum rate is fixed at 10%. e source country on interest is fixed at 15%, and that
es and other like payments in respct of the production work is granted in the treaties with Canada and the ising in a contracting state is exempted in that state if bris paid to the government of the other contracting ties, exyended to interest received by the Central Bank
circumstances, by a bank or other credit agency.
est and royalties include a standard paragraph which t available if the recipient of the income maintains in a fixed base with which the share holding or the nected. In such event, interest, dividends or royalties hment or fixed base and taxed accordingly.
e a restrictive provision which applies where a special nt of the interest or royalties and where on account of eamount which would otherwisehave beenpaid under under any other provision of the tax treaty, which is provision under the domestic law.
he trems "interest" and "royalty". "Interest" means not secured by mortgage and whether or not carrying s been defined to mean payments of any kind received , any copyright of literary, artistic or scientific work for radio or elevision broadcasting, any patent, trade cess, or for the use of, or the right to use industrial, tion concerning industrial, commercial or scientific
acting state when paid by :
vision or a local authority thereof:
if the royalties or interest are incurred and borne by a
Bria that must be satisfied for a resident of one country on his or her income from personal service. In respect

Page 147
of independent personal services, the source country the services has either a fixed base regularly availa person is present in the source country for a periodo 12 month period. Whether either of these conditions i in the source country can be taxed by it. Some of th may tax a resident of its treaty partner on his or h personal services only if that resident has a fixed ba services.
All the tax treaties contain a common set of rules in one country is liable to taxin the tax treaty partnercol in the second named country. The source country fi
(i) the employee is present in the source c.
in any 2 month period, and
(ii) the employee's remuneration is paid b
source country, and
(iii) the employee's remuneration is not bor the employer has in the source country
Some of the tax treaties deal with personal services such event, independent personal services are liable i in the foregoing paragraph are satisfied.
The usual exceptions to the general principles spelt
(a) employment on ships or aircraft opera (b) employment in government service; a (c) artistes and athlctes.
The tax treaty articles state that the remuneration oftl traffic may be taxed in the state in which the place c The exclusive right of taxation of remuneration paid state. Where, however, the services are rendered in th of that state or an individual who became a resident t of residence has the exclusive right to tax the incom country of source irrespective of the duration of the
Shipping & Aircraft
The taxation of shipping and aircraft profits is one of of view of a developing country like Sri Lanka. The O
of shipping profits in the country of residence and f
137

axquires taxing rights only if the person who renders ble for the purpose of performing the same or if that periods aggregating to 183 days or more within any ssatisfied, the income derived from services rendered : treaties are more restricitve and the source country 2r income from professional and other independent se regularly available for the purpose of performing
repect of dependent personal services. A resident of untry on remuneration from an employment exercised orgoes its right to tax only if.
puntry for a period or periods not exceeding 183 days
y or on behalf of a person who is not resident in the
ne by a permanentestablishmentor fixed base which V.
both dependent and independent in one article and, in in the source country when the conditions enumerated
out in the preceding pargraphs deal with:
ted in international traffic; ind
he crew of ships and aircraft operating in international feffective management of the enterprise is situated. by a sate for services rendered to it is reserved for that e other state and the services are rendered by a national here of for reasons other than employment, the state 2. The income of artistes and athletes is taxable in the ir saty.
he problem areasin the tax treatyfield from the point ECD Model Convention provides for the full taxation or exemption in the other country.

Page 148
For a less development country like Sri Lanka, this w losscs in revenue and foreign exhange. Sri Lank insignificant and the relief granted would be largel
In the tax treatics entered into by Lanka, the taxatio an opcrative rule for the shipping business specific business profits governed by the permanent establis place on the high seas and the profit ariscs in the "sou Sri Lanka has adopted as a general rule thc principlc and aircraft profits. Thc applics to the tax treatics Malaysia, Norway, Singapore and Sweden. In Howe thc full tax is to be charged by the country of reside
Exchage of Information
The Standard tax treaty provisions for mutual pr competenct authoritics of the two countrics as rc interpreation and handling complaints, and as regar treaty article.
Most tax treaties have as their objective, besides avi tax evasion. Since the tax jurisdiction of a state is c nowadays arc not and cannot be cabined, the possibi in the double tax treaties for the prevcntion of tax c most helpful to the efforts of developing countries to Sri Lanka, an article is included authorising the cont to carryt out the provisions of thc treaty and to curb a routinc basis or on the request of the contracting sta Such information received by a compcticnt authority be disclosed only to person or authorities conc proscCution in respect of the taxes covercd by the t
Sri Lanka's Double Tax Treaties
(1) Australia
(2) Bangaladesh
(3) Bclgium
(4) Canada
(5) Czechoslvakia (6) Denmark
(7) Finland
(8) Francc (9) Federal Republic of Gernmany
138

ould not be a satisfactory criterion, as it would involvc a's owcnership of shipping and aircraft vessels is y One Way.
n of shipping profits in the source country is based on ally, and is not qualified by the provisions realting to shmcnt rules, since almost the entire operatiuon takes rcc country" on the freight earnings from that country. of "rcvenuc sharing" in the articel relating to shipping with Australia, Canda, Denmark, Germany, Japan. :ver, in the treaties with Pland and the United Kingdom, nce and exemption is granted in the country of source.
ocedure and exhange of information have been thc gards resolving doubts and difficultics concerning ds information which falls within the scope of thc tax
iodance of double taxation, combating thc problem of onfica within its bounds, and, cconomic transactions lity of tax evasion has increased. Hence, the provosion vasion and for the exchange of fiscal information are ) combat such evasion. In all the treatics concluded by racting states to exchange information as is necessary tax evasion. Thc exchange usually contemplated is on tc with refcrcnce to a specific transaction ora taxpayer. of a contracting state shall be treated as secret and shall 2rned with assessment, collection, cnforcement or reatics.

Page 149
(10) India (ll) Japan (12) Korea (13) Malaysia (4) Netherlands (15) Norway (16) Pakistan (17) Poland (18) Romania (20) Singapore (21) Switzcrland (22) Thailand (23) United Kingdom (24) Yugoslavia
TABLE 2
Tax Ratcs for Interest, Dividends & Royalitics undc
(l) (2) (3) (4) (5) (6) (7) (8)
(9)
Country Interest Dividends
Australia 10%. 5% Bangaladesh 15% 15% 15% Bclgium 10%. 15% Canada 15%. 5%
Czcchoslovakia ()%. 15%
Denmark ()%. 5%
Finand 10%. 5%
Francc 10%. 15%
(0% on copyrights) - Fedcral Republic of Germany
10%
10%
()')
10%
()%
10%
10%
(0%
Roya
15%

r Sri Lanka's Tax Treatics
lties
10%
39

Page 150
CHAPT
RETURNS AND
Who should furnish tax returns?
The Act requires every person chargeable w Revenue Act No. 28 of 1979 to furnish the t 30th November following the end of the yea furnish the return whether he or she is called not. The failure to comply with this require (i) (d)) and on conviction after trial before a further provides for an Assessor to call for a such person is expected to furnish the return v to comply with the requestis also an offence powers to call for
(a) fuller or further returns, or
(b) fuller or further information relating
The Act also gives power to a Deputy Comi attend in person or through an authorised r relating to the income of such person or any person to produce various documents specific
Audit Reports to be furnished
(i) Section 92 A of the Act (incorpora Assessor the power to call for statem schedules containing such particulars by him from:-
(a) Partner of a Partnership.
(b) Secretary, Manager, Director
(c) Individuals. -
(d) Trustee or Executor.
(e) Secretary of a Club or Cham who carries or exercises any
(ii) Where the statement of accounts is p should be accompanied by a Certific purposes of the section, Charted Acc
14

TER 27
NFORMATION
ith income tax, wealth tax or gifts tax under the Inland ax return for any year of assessment on or before the ir of assessment. The duty in this case on taxpayer to l upon by thc tax authorities to furnish a tax return or ment is made an offence under the Act (Section 151 Magistrate to a fine not exceeding Rs. 2,000. The Act return of income, wealth or gifts from any person and within the time granted to him by the Assessor. Failure punishable under Section 151. The Assessor has also
to any specific matter.
missioner of Inland Revenue to require any person to epresentative to be examined by him on any matter other person. The power also extends to require such 2d in the Act which are in the possession of that person.
ted by Amendment Act No. 14 of 1984) gives the ent of accounts (for any year of assessment) and any which the Assessor may specify in the notice issued
or other principle officer of a Company.
ber of Commerce
trade, business, profession or vocation.
prepared by an approved Accountant such statement ate from the Accountant. Accountant means for the ‘ountants and Registered Auditors.

Page 151
(iii) Section 92 AA of the Act (incorporate every individual who is chargeable t following particulars in his return:-
(a)
Identity Card Number, or
(b) Current Passport Number.
Certain transactions of Individuals should
Section 92 AA (b) requires that an individua gifts tax should indicate in the documents rel by the Minister by notice published in the Ga Passport Number. By Gazette Notification N have been specified. Given below is the sch
Sched
The following transactions relating
(a)
(b)
(c)
all notarialy executed transactio immovable property,
all notarially executed transactic commercial premised;
all notarially executed transactic property.
2. Transactions with the Registrar of M
mortgage of vehicles.
3. Transactions with banks, financial In
(a)
(b)
(c)
(d)
(e)
for the opening of current accou
for the opening offixed deposits
for loans,
for the discounting or acceptanc
for letters or credit,
14

d by Amendment Act No. 16 of 1985) requires that income tax, wealth tax or gifts tax or indicate the
indicate identify card number
l who is chargeable with income tax, wealth tax, or ating to certain transactions (these will be specified Zette) either his identity Card number or his current o. 384/11 dated 17th January 1986 the transactions :dule of the transactions contained in the Gazette.
lule
to properties:
as for the transfer, mortgage, lease or gift of any
ns for the rent or lease of any residential or
ns for the rent, sale or lease of any movable
otor Vehicles for the registration, transfer or
stitutions and money lenders
nts;
of a bill of exchange;

Page 152
6.
(f) for trust receipts, promissory notes
Transactions for the purchase and sale of
Transactions for the registration of businc
Transactions for the provision of professio rupces or ovcr, per annum.
Transactions with the local authoritics for
Transactions with thc department of Priva
Transactions for sale of goods, the value of in thc course of carrying on a trade or bus
142

and pledges.
shares and debentures
SSCS.
alorothcrscrvices, to thc value of fifty thousand
building permits and licences.
te Omnibuses for permits to run private coachcs
which is over twenty-five thousandrupees, except iness.

Page 153
CHAPT
ASSESSMENTS
Assessments and Additional Assessments
Every person liable to pay income tax, weal pay the tax due in four quarterly instalments. F good the balance by the 30th November of the has complicd with this sclf-asscssment schem an assessment on such taxpayer.
Where however any person has not paid the t than the properamount due from such person This assessment can be made only astcr thc assessment. Whcre a pcrson has furnishcd arc thc return and issue an assessment on a basis cxpcctcd to communicatchis reasons for nota a return thc Asscssor can estimatc his inc communication of reasons do not arisc.
Any assessmcnt or additional asscssmcnt sho, of assessmcnt. This timc limit does not apply
Example: for thc year of asscssmcnt 1983-84 day beforc which an assessmcnt should be ma of the year of asscssment 83-84 which is 3 is
Appeals To The Commissioner-General-S
Any pcrson who has bcen assessed and who Commissioncr-General. This appeal should b thc datc of the notice. The appeal should set o taxpayer has not furnished a return thc appe. Otherwisc, the appeal will become invalid.
On reccipt of the appeal Commissioner-Genc in thc course of inquiry an agreements is reach can bc settled. If no agrecmcnt is reached t Commissioncr-Gcneral or any other pcrson t After thc hearing of thc appeal thc Commi Commissioncr-Gcncral has powcr to confirm
143

ER 28
AND APPEALS
h tax or gifts tax is expccted to furnish a return and urthcrif therc is any shortfall in the payment to make ycar following thc year of assessment. If a taxpayer : thcre will be no neccssity for the department to issue
ix duc for any year of assessment or has paid tax less the Assessor is empowcred to issue an assessment. 15th November of the year following the year of turn of income and the Assessor has chosen to rciect different from figures in thc return the Assessor is :cepting the return. Whcreaperson has not furnishcd )mc and issue an assessment and in this casc the
uld bc made within three years of the end of the year
where there is fraud or wilful evasion.
is the Assessor wishcs to assess a taxpayer the last dc is 31st March 1987 (i.e) three years after the end ( March 1984.
.17
is dissatisfied with an assessment can appeal to the 2 in writing and should bc filcd within 30 days after ut thc precisc grounds of appeal. In a case whicre the ul should be sent along with the return of income.
ral refers the appeal for inquiry by thc Assessor. If :dbctwccn thc taxpaycrand the Asscssor, thcappeal he matter will be fixed for formal hearing by the whom he has delcgated the hcaring of the appeal. ssioner-Gencral will give his determination. The , reducc or increase the assessment.

Page 154
Appeals to the Board of Review
Within one week of the receipt of the Com taxpayer if he is dissatisfied can appeal to Commissioner-General should within one determination within one month of the date for his determination of the appeal the taxp. writing. The petition shall
(a) be accompanied by a copy of the
against which appeal is made precis
(b) set out the grounds of appcal;
(c) be delivered to the Clerk of the Boal
On receipt of the appeal the Clerk to the Bo which the appeal will be hcard. After the hc which can either confirm, reduce, increase appeal.
Appeals to the Court of Appeal
Any person dissatisfied with the determina of Appeal. It is open to the Commissioner determination of the Board of Review. The month of the notification ofthe decision oft on a question of Jaw. Two or more judges of of law in the appeal. The Court has the power
Appeals to the Supreme Court
A taxpayer dissatisfied with the determinati Court if the subject matter of dispute invol

missioner-General's determination of the appeal any the Board of Review. When an appeal is lodged the month transmit to the taxpayer his reasons for the of the receipt of the Commissioner-General's reason lyer should file his appeal to the Board by petition in
Dommissioner-General’s determination and reasons ely. -
rd of Review.
ard of Review will summon a meeting of the Board at aring, the Board of Review will give a determination or annul the assessment which was the subject of the
tion of the Board of Review may appeal to the Court -General also to file appeal to the Court against the party appealing to the Court should do so within one he Board of Review. An appeal to the Court lies only the Court of Appeal hear and determine the question to increase, decrease, confirm orannul the assessment.
on of the court of Appeal may appeal to the Supreme. vesa substantial question oflaw.

Page 155
2.
CHAPTE
RECOVERY
Wherc any income tax, wealth tax or gifts tax to be in default. The Act providcs thc various will use to recover the taxcs in default. The Ir to taxes for years of assessmcnt 1979/80 and l: in respcct of years of asscssment from 1963/6 uscd.
The several methods provided in thc Act for
(a) By proceedings bcsore a Magistrate.
(b) By scizure and sale of immovable and
(c) Recovery out of dcbts duc to thc taxpa
(d) By transfer. of immovablc property, ol
(e) Recovery though thc employer is the ti
(f) Tax of a partner could be recovercd fr
(g) Preventing a taxpayer (who has arrear
from leaving thc Island.
(h) Gifts tax duc from donor may bc recov
Notice to defaulter taxpayer
Prior to the commencement of proccedings tor is cxpected to issue a notice under Section 12: thc taxcs by any of the methods mentionca in and if he had not appealed against thc assessm thic date of that noticc. The Commissioncr-Gen taxpayer and can reduce or confirm thc tax p within thc stipulatcd 30 days hc will lose his ri confirmcd.
Proceedings before a Magistrate for there
The proccdure laid down in the act in respcct
145

ER 29
OF TAX
is not paid on the due date, such tax will bc dcemcd mcthods which the Department of Inland Revenue land Revenuc act No. 28 of 1979 is applicable only
utcrycars, but for thc purposcs of recovery of taxes 4 the provisions of Act No. 28 of 1979 can also be
thc recovery of taxes are:
movable property.
yer and scizure of Bank Accounts.
taxpayer to the Government.
xpaycris an employce.
om the asscts of thc partnership.
of taxes to pay)
'cred from donec.
2covcrthe tax in arrcars the Commissioner-General 3 (l) of the Act that action will 'akcn to recover he last para. When a tax-payer i cives this notice ent he should make his objection within 30 days of cral is empowcred to consider thc objections of the ayable. If the taxpayer fails to make his objcction ght of objecting to thc assessment and the tax gets
covery of tax in default-Section 130:
of this method of recovery is as follows:-

Page 156
(a) The Commissioncr-Gcneral filcs accr
with thc Magistratic (of thc particular
(b) After the filing of the certificatc the Ma
in Courts. Thc dcsaulter should thcn cannot be taken against him for the rc
(c) Unless thc default.crshows sufficicnt r recover the tax by the Magistrate th Magistrate.
(d) The Magistrate is however cmpowerc not cxcccding 30 days if it is urged tha correctncss of the certificatc issucd by the Magistrate in these proccedings.
(c) The Magistratic will impose the tax as
Although the sectionspicaksofa Magistrate un is given an all island jurisdiction in rcspecto can file action in thc District Court of Colomb( where the taxpayer resides.
Recovery out of debts and scizure of Bank
The commissioncr-Gcneral of Inland Revenu (a) owes money to the defaulter or (b) holds
A noticc sctting out the tax in dcsault is issued him to pay. On reccipt of this notice if such thc notice inform the Commissioner-Gcneral Failurc to give this notice within 14 days will liable to pay the taxes of the default.cr.
In practice the department of inland revenue to a banker with whom the desaulter opcratics thc bank.crhas to remit the moncy to the Comm the account is a fixed deposit where thc mon notice, the bankcr is not expected to remit th
Certain amcndmcnts have been introduced by banks and other financial institutions) hel amcndmcnts here because certain important General is cmpowered to issue notice to the b the joint account is held by the defaulter to pa
46

ificate giving the name and address of the defaulter nrca whcrc thic defaulticr rcsidcs).
gistratic will issue summons to the defaulter to appcar ppear and state to Court why furthcr proceedings covery of the tax.
asons as to why proceedings should not be taken to 2 tax in default will be imposed as a fine by thc
d to postpone or defer the procccdings for a period it an appeal is pending against thc assessment. The the Commissioncr-General cannot be questioned by
a sinc and recover it in instalments.
der thc Judicature Act the District Court of Colombo stax recoverics. Thc dcpartment of inland revcnue ) (Tax Court) or in the Magistratics Court of thcarea
Accounts of defaulter-Section 131
e can recover the tax in default from any pcrson who
moncy for or on account of the defaulter.
to the person owing or holding the money requiring crson is unable to pay he should within 14 days of of the reason why hc cannot comply with thc noticc. result in the person who received the notice asbcing
resorts to this mcthod of recovery by issuing noticc an account. Where thc account is a current account, issioner-Gcncral on receipt of this notice. But where ey is not payable within thrce months of the date of c money.
Act No. 16 of 1985 with regard to joint accounts (in by defaulters. It is proposed to deal with that changcs have been introduced. The Commissionerankcr (or othcrfinancial institution orpcrson) where 7 the tax in default when thc Commissioner-Gcncral

Page 157
5
6.
is satisficd that moneys in the joint account is a On reccipt of the notice thc bankcris expected Commissioncr-Gcineral. When making the rem
joint account holder or holders that thcy arc mal
or holders arc aggricvcd in that thcir moneys h they may make a claim within two wecks to
Gcncral will considcr thcir claim and if satisfi bclong to thc other joint account holdcr or hold dissatisficd with thc order of thc Commissioncr within three months of the notice for thc recov
Other methods of recovery
Thcse methods are resorted to only in rare cast
The Commissioner Gcincral has authority to pro onc method-Scction l39.
147

ttributable to thc contribution made by defaulter.
to comply with the noticc and pay money to the ittance thc bankcr is expccted to inform thc other ing the paymcnt. If thc other joint account holdcr awc becn remitted to thc Commissioncr-Gencraill thc Commissioner-General. The Commissioner2d will make order for refunding moncys as may crs. Any joint account holdcror holders who are -General may institute action in the District Court cry of any sums wrongly paid by the banker.
s-Section 13 A to Section 139.
occcd to recover thc taxcs in dcfault by more than

Page 158
CHAPT
PENALTES A
Penalties for incorrect return
Whcrc an assessment has bccn made on any gifts excccds thc amount shown in the return and conclusivc thc Commissioner-General that thcre is no fraud or wilful neglect invol Where such person fails to prove that there following three steps in punishing the offen
(l) Impose a penalty (2) ProscCute for making incorrect (3) Prosecutic for fraud.
Scction 124 (l) providcs that the Commis cxcccding Rs. 2.000 plus a sum equal to Commissioncr-Gcncral has imposed a pena. is aggricvcd by such order. The Board of R increase or annul the penalty imposed by thc Gencral has imposed a pcnalty on any pcrSon not bc prosecuted in a Court of Law (Scotic
Prosecution for furnishing incorrect ret
Scction 51 (4) of the Act provides that cver of the following acts such person shall beg for penaltics providcd in the section.
(a) makcs or furnishes an incorrect retur gift, of which he is requircd by this AC or on bchalf of another person or a p
(b) makcs an incorrect statement in conn a partnership, or allowance under Cl
(c) gives an incorrect information in rcla to tax or the liability of any other pc.
The pcnalty provided is a fine consisting o
(a) a sum cqual to the amount ostax unde
return by such person) and

TER 3()
ND OFFENCES
person, and that the amount of the income, wealth or made by that person and that such assessment is final may require such pcrson to prove to his satisfaction lved in the disclosure of the income, wealth or gifts. is no fraud or wilful neglcct, he may take any of thc dcr:
rCturnS
sioncr-Gcncral can imposc a penalty of a sum not
twice thc tax cvadcd. Any person on whom thc ity has a right of appeal to the Board of Review if he eview can hear the appeal and can confirm, reducc, Commissioncr-Gcneral. Where the Commissionerfor surnishing of an incorrect rcturn such pcrson shall
bn 124 (4).
III
ypcrSon who without reasonable excuse commits any guilty of an offence under the Act and shall be liable
in by omitting or understating any income, wealth or :t to makc or furnish arcturn, cithcron his own bchalf artnership, or
ection with a claim or on behalf of another person or hapter VII of the Act, or
tion to any matcror thing affecting his own liability son or of a partnership.
f
'rcharged (as a result of the furnishing ofan incorrect
48

Page 159
(b) a sum not exceeding Rs. 5,000, or
(c) to imprisonment for a term not exceedi
(d) to both sinc and imprisonment.
Fraud
Any person who commits any of the following any other person to evadc or attempt to cvadci an offence.
The offences in respect of which penaltics are
(a) omits from arcturn made any income, w
(b) makcs any false statement or cntry in a
(c) makcs a false statements or entry in con
Ο Ι'
(d) signs any statement or return furnishcd
to bc truc; or
(c) gives false answcrs whether verbally ori
askcd or made; or
(f) prepares or maintains or authorises thc
account or other records or falsifics ora or records, or
(g) makcs use of any fraud, art or contrival
fraud, art or contrivance.
Prosecutions to be with the sanction of the (
No prosecution in respcct of an offence under thc instance or with the sanction of thc Comm
Admissibility of statements and documents
Any statements made, or documents produced Revenuc Act by any person who is chargeable Commissioner-General of Inland Rcvenue, or Assessor of the Inland Revenue Departmcnt su
149

ng six months, of
and thcreby evadcs or attcmpts to evade or assists ncome tax, wealth tax or gifts tax shall be guilty of
imposcd are where any person:
'ealth or gifts which should have been included; or
ny return made; or
ncction with a claim for a deduction or allowance;
without reasonable ground for belicving the same
In writing to any qucstion or rcqucst for information
preparation or maint.cnancc of any falsc books of uthoriscs the falsification of any books of account
ce whatsoever, or authorises the usc of any such
Commissioner-General
Scction 151 or 153 shall be commenced except at ssioncr-General.
in cvidence
in relation to any matter arising undcr the Inland with tax or by his authoriscd represcntative to the a Commissioner, a Deputy Commissioner or an Ich statemcnts and documents arc admissiblc in

Page 160
evidcnce in any proceedings against the taxpay or lS3 of the Inland Revenue Act.
Penalty for delayed payment of income tax,
Section 97 () of thc Act provides that cvery p (incomic tax, wealth tax or gists tax) shall pay su instalments as follows:
(a) on or before the 15th day of August in
(b) on or before the lSth November of that
(c) on or before the 15th February in thcyc
(d) on or beforc the 15th day of May in the
It is not possible for any person to compute the ycar of assessment till the cnd of the year of a cvery person to pay tax for one year of assess previous year of assessmcnt.
Example: A, an individual, has paid for thc yea For the year of assessmcnt 85/86 A is requirc specifica i.c.
(a) on or before the lith August 1985- Rs. (b) on or before the 15th November 1985 (c) on or before the liSth February 1985- F (d) on or bcfore the 15th May 1985- Rs. 25
If A has to pat for thc year 85/86 i.e. on his incol say, a sum of Rs. 50,000, no penalty is payabl or bcfore 30th Novcmbcr 1986. Penalties beco
The basis of computing pcnalty for dclaycd pay According to this scction, a penalty of 5 per cer first30days thc tax is in default. Furthcrpcnalti the tax is on arrcars for a period of three months to 50 pcr cent of the tax. There is provision in reduce or waive any penalty for delayed paymc such reduction or waiver is just and cquitable.
5()

er in respect of anyossence under Scction 151, 152
wealth tax or gifts tax
crson liable to pay tax for any year of asscssment Ich tax to thc Commissioncr-gencral in four cqual
that year of assessment
year of assessment.
2ar following thc year of assessment.
year following the year of assessment.
incomic tax, wealth tax or gifts taxpayable for any ssessmcnt. Provision is thercfore madc to require ment on the basis of the taxes he has paid in the
Ir of assessmcnt 84/85 income tax of Rs. 100,000. 2d to pay thc following instalments on the dates
25,000 Rs... 25.000 Rs... 25,000
5. ()() ()
me for the year list April 1985 to 31st March 1986 c by him if he pays the shortfall of Rs. 50,000 on mc payable only after this datc.
ments is provided in Section 25(2) of the Act. it of thc tax in arrcars or dcfault is payable for the cs of 5 pcrccnt of the tax in dcsault is added where s or part thereof. The maximum penalty is limited Section 125 (2) for the Commissioner General to :nt of it appears to the Commissioner-General that

Page 161
The Scheme
CHAPTE
PAYMENT OF TAX
UNDER THE PA
The income taxpayable by an employce in r by thc cmployer at the time the remuneration i bc.cn paid by the employce to the Commissic
Deduction of Tax by the Employer
(l) The deduction for income tax payable of assessment is in terms of PAYE I beginning of each year of assessment tables makes provision for cnsuing ye
(a) (b) (c) (d) (c)
Tax Table 1 - Monthly Deduc Tax Table 2 - Rates applicable Tax Table 3 - Tax dcduction si Tax Table 4 - Tax dcductions
Tax Tables - Annual Deductio
(2) Tax is deducted from the remuncratio
(i)
(ii)
(iii)
(iv)
For the year of asscssmcnt 19 remuncration is in cxccss of F
For the year of assessment 19: menscm or Rs. 18,000 per an
For the year of assessment 98 mensem or Rs. 24.000 pcr an
In the case of an employce no Sri Lanka is in cxccss of Rs. 8
Credit for Tax paid under PAYE
(i) In the case ofan employec who is in reç tax under thc sclf assessment scheme o for tax paid under the PAYE. In orde certificatc from thccmployer showing should bc attachcd to thc annual returr
5

ER 31
BY EMPLOYEES YE SCHEME
aspect of his income from employment is deducted spaid to him. The tax so deducted is decimed to have incr-Gencral of Inland Revenue.
(Scotion 98)
on the employment income in respcct of cach year ncome Tax Tables applicable for that year. At the the Commissioner-General issues an Income Tax ar. The incomc tax tables makes provision for
tions
to Monthly Deductions or once and for all payments for cmployees Non-Residcnt in Sri Lanka
S
n of an employce if
79/80, 1980/8l, 1981/82, 1982/83 and 1983/84 thc Rs. l.000 per mcnscm or Rs. 12,000 pcr annum.
34/85 the remuneration is in excess of Rs. 1500 per
L.
85/86 thc remuncration is in excess of Rs. 2,000 per
lf.
resident in Sri Lanka or temporarily rcsidcnt is in 35 per mcnsem or Rs. l.000 pcr annum.
eipt of other sources of income and who has to pay r where an assessment is issued crcdit will be given r to gct this sct off the employec should obtain a he amount of tax paid under PAYE. This certificate
l.

Page 162
(ii) fan cmployee has to pay more taxt arrangemcnt with the employcr to c a greatcr sum than required under cmployee to covcr his tax liability.
Once and For all Payments
These sums specified in Section 4(c) oft
(a) Retiring Gratuity
(b) Sums paid as commuted pension.
(c) Sums from provident funds (appr cmployces contributions tosuch fu
(d) Sums paid from a regulatcd Provide
(i) Employecs' contribution, a (ii) Employers' contribution m contributions if the emplo contributions and the accru
(c) Sums paid as compensation for los
At the time an employcc ccases his cmpl payments specifica abovc and apply the Commissioner-General:
On the first Rs. 100,000 - Nil On thc next Rs. 50,000 - 10 pel On thc next Rs. 50,000 - 10 pe
The concessionary rate of tax is applicablk to all employces in respcct of paymcnts a uniform scheme is applicd the concession thc normal rates. It is advisable for employ approved by the Commissioncr-Gcncral o
Directions to employers
An cmployce who is cntitled to a deductio payments should apply for a direction fro1

han he has to pay under the PAYE schemche can makc educt and remit to the Department of Inland Revenuc the PAYE incomic tax tables. This will facilitate thc for the fullycar.
he Act are :
oved by the Commissioner-Gcneral) excluding the nd after I-4-1954.
nt Funds to ancmployce cxcluding the following sums:
und ade prior to 1-4-1968 and the intcrest accrucdon such yer has paid tax at the rate of liš per cent on such led intcrest and
s of office or employmcnt.
oyment the employer is expected to aggregate all the rates given bclow and deduct tax and remit to the
* CCnt.
CCt.
: whcre an employer has a uniform scheme applicable s gratuity and compcnsation for loss of office. If no ary ratic will not apply and tax will have to be paid on 'ers to formulate schemics for paymcnt of gratuity and flnland Revenue.
in from his income on account of any of thc following m the PAYE branch,

Page 163
6.
l Interest
2. Insurance
3. Annuity 4.
Any other qualifying payment.
This direction can be obtained from thc C payments and the employer will be directed
Adjustment for excess payments under P
Where an employer has deducted and remit
in excess of the amount due the cmploycr subscquent period in that year of assessmen

ommissioner-General by furnishing proof of such to recover a lower amount of tax.
AYE
cd to the Departmcnt of Inland Revenue an amount may deduct such cxcess from any remittance for L.

Page 164
CHAPTI
REPAY
Any person who has paid tax in cxcess of the under thc following circumstances:
(a)
(b)
(d)
(e)
(f)
(g)
Where any person has paid any incom in excess of the amount which he wa made in writing within three years o
Where the taxpayer can provic to the Revenue by a claim made in writing that he has paid income tax, wealth (as or thc return of income. Scction l49
Where an employcrhas paid any sun for that year of assessment on a claim a year of assessment. Scction 49 (5
Where tax has bccnpaid in cxcess wh 29 (6) (ii)
Where tax has bccn paid in excess included interest receivable, which : Section 23 (4).
Whcrc tax has bccn paid in cxcess on refused deduction of annuity, grounc
been subscquiently paid. Section 29 (
Rcfund of penalty rescrrcd to in Secti
as penalty.
Refund of tax paid in excess of the amou
A claim for resund of tax paid in cxcess mu of assessment as otherwisc thc claim will be the prescribed pcriod will lose the statutory
Thc claim will apply to incomic tax, wealth but thc claim for resund shall not opcratc:

ER 32
MENT
amount due could claim a repayment of such excess
c tax, wealth tax or gifts tax by deduction or otherwise s liable to pay for that year of assessment by a claim f the cind of a year of assessment. Scction 49 ().
satisfaction of thc Commissioncr-Gcneral of Inland within three years of the cind of a year of assessment or gifts tax in excess due to an error in thcasscSSmcnt
) (3).
n in cxcess of thc amount which he should havc paid n for rcsund is made within three years of the cind of
).
icharoscon the sct-ofsof capitallossatdcath. Scction
which arose on the revision of asscssment which subscquently was found to have bec irrecoverable.
the revision of thc assessment in which the Assessor ircnt, royalty or interest payable was found to have
2) (a) (iv).
on 124 (2) of thc Inland Revenue Act should bc paid
nt with which a person was liable to pay
st be made within three years of the cind of the year : prescribed. A person failing to make a claim within
right to thc refund of the tax paid in cxcess.
or gifts tax paid in cxcess by deduction or otherwisc

Page 165
(i) to cxtcnd or reduce the timc
(ii) to extend or reducc the time l
claims: or (iii) to validate any objection or a
(iv) to authorisc thc revision ofan
and conclusivc.
An cxccutor. trustcc or receiver can make a excess by any person who would have been from doing so duc to death, bankruptcy, inca be made to thc benefit of such person or his
Limitation of resund. Where a person is en dividends, intercst, rcnt, ground rent, royalty is limited to thc amount available as sct off.
Refund of tax paid in excess due to any el
Whcrc a person has paid tax in exccss of the of assessment duc to any crror in thcassessi cntitled to a resund of the tax paid in cxcess. T of the cind of a year of assessment.
Refund of tax paid by an Employer unde should have paid
Whcre an cmployer has paid any sum for an which hc should have paid hc can apply for assessment. Whcre the employcr has sailed has becn made on him for the purpose of rc rclsundcd. Scction l49 (5).
Refund of tax paid in excess on set off of
Whcre the revision of assessments is made in any refundarising shall be paid to the Exccutc of the Commissioncr-Gcncrai cn titled to thc thrcc preceding years and the year of asscss asscssmcnts may be final and conclusivc. Th for refund. Scction 29 (6) (d) (ii).

imit for appeal; or
imit for a claim for rcpayment specifica for such
opcal which is otherwisc invalid; or
7 assessment or other matter which has become final
claim for resund in respect of the sum of tax paid in 2ntitled to claim such resund but has bccn prevented pacity, liquidation or other causes. The resund will CStatC.
Scction 149. (2)
titled to a set off of tax deducted in respect of any or other annual paymcnt the amount of the rcfund Scction 149 (l) (ii).
rror in the return of an assessment
amount with which he was liable to pay for that year mcnt or the return of income, wealth or gifts will be hic claim for rclsund must be madc within thrccycars
r the PAYE which is in excess of the amount he
year of asscssment which is in cxcess of the amount a refund within three years of the cind of that year of to pay the amount due from him and an assessment covery, any sum paid on thc assessmcnt cannot bc
apital loss at death
respcct of unabsorbed capital loss at death of apcrson bror to such pcrson or pcrsons who arc in the opinion rcfund. It is lawful to revise the asscssments for thc mcnt in which the death took placc, although thesc erc is no time limit prescribed for making the claim

Page 166
6.
Rcfund of tax paid in excess as a result subsequently not recovercd.
Thc income tax law provides for the assess duc (whether paid or not) is excessive for furnishing thc return should include the int under the self-assessment scheme on the su of intercst is not recoverable he can cxclud paycrhas included in the computation of tax of intcrest cannot be recovered, it is opc. excluding the interest. Such claims should of assessment.
Refund of tax paid in excess on the revi deduction of annuity, ground rent, royalt subsequently paid
An Assessor may refuse to allow any dcduc interest, ground rent, annuity or royalty pa has bcen subsequently paid and an applic payment, the assessment can be revised allo become final and conclusive. Any tax found asscssment is refundable notwithstanding til years of that year of assessment.
Interest payable on the amount of refun
Scction liš () of the Inland Revenue Act pro
ofomc pcrcentum for cach complctcdpcriod a period of six months from the date when

of the inclusion of interest receivable which was
nent of interest on the basis that the full interest falling
the relevant year of asscssment. A taxpayer when crest receivable by him in the return and pay the tax ill intercst. However, if he secls that a particular itcm such intercst in computing the tax payable. If the tax an itcm of interest reccivable and latcr finds that itcm 1 to him to claim a refund by re-computing thc tax lso be made within three years of the end of the year
sion of assessment in which the Assessor refused y or interest payable which was found to have been
:tion from thc statutory income any sum representing yable under Scction 29 (2) (a) (iv). Whcrc such sum ation has been made within twelve months of such wing such deduction cven though the assessment has to havcbccnpaid incxcess as a result of such amended hat a claim for refund has not bccn made within three
d in certain circumstances
vides that a taxpayer is cntitled to intercst at thc ratic
of one month for which a resund remains unpaid astcr such resund is duc.
6

Page 167
(a)
(b)
CHAPT
TAXATION AND TH
At the outset it must be stated that the bas businessmcn, professional, employce oran No. 28 of 1979 casts an obligation on eve year of assessment to furnish to an Assesso immcdiately succeeding the end of thcyca tax fails to furnish thc return, such person thc Act and is liable on conviction, after Thousand. A prosecution for an offence instance of or with the sanction of the Con holder of the officc of Commissioner-Gen may not havc instituted proccedings undert from instituting procccdings under this sc
Section 92 (2) of the Act, however, require requiring such pcrson to furnish a return of noticc is usually issucd to apcrson who has thinks, will bc liable to tax. Failure to furnis 92 (2) is also an offence undcr Scction 15 as mentioned in the last paragraph. The Con under this Scction. In practice, a tax circumstances:-
(a) at his own request, (b) when information reaches the Inlanc
chargeable with income tax.
Information is collected by thc Inland Rcve
C
(i) Rcgistrar of Lands, when a person a
(ii) Registrar of Motor Vehicles, whcn a
(iii) Controller of Exchange, when a pers
moncy abroad.
(iv) U.D.A. and Municipal authoritics, wh
flats.
In order to ensure that the informatic the Inland Revenue Act has provided
57

ER 33
E PROE ESSIONALS
is of taxation is the same, whether a person is a d investor. Section 92 (l) of the Inland Revcnue Act y person who is chargeable with income tax for an rarcturn of income on or before thc 30th Novcmbcr r of assessment. If a person chargcable with income is guilty of an offence under Scction lsl (l) (d) of summary trial, to a fine not excccding Rupees Fifty under ScCtion lsl may bc commenced only at thc missioner-General of Inland Revenue. Thc present cral of Inland Rcvenue or his predecessors in office his section. But thcre is nothing which prevents thcm COI).
S the Assessor to give notice in writing to any person income in the form specificd for that purpose. This a file in the tax office or to a person who, thcassessor harcturn when an Assessor calls for it under Scction () (a) of the Act and is liable to the samc penalties
missioncr-Gcncral of Inland Revenuc normally acts file is opened for a pcrson under the following
revenue Department that he is
nue Department from several sources. Some of thcse
cquires immovable propcrty.
person acquires a motor vehicle.
on obtains permission from the Controllcr to remit
cn approval is obtainca for constructing houses and
on collected is processed without any error, that every individual who furnishes a return

Page 168
should specify his or her identity car cannot obtain an identitycard.) (Section 9 manner, the Assessor will open a sile in t submitted.
2. Incorrect Returns
Evcrypcrson who furnishcs a return is oblige all sources. An offence is committed by a
reasonable cxclusc" (Section lil (4)). Thc pc. plus a sum not cXcccding Rupecs Ten Thous
3. Returns of income by Professionals.
In order to furnish a correct return of incom should maintain a record of his income. This is should also maintain a record of his cxpcnsc cxpenses can he or she claim them as deductio arc some of thc expenses one usually comcs
(a) Tcleplhonc & Fax (rentals and mon (b) Junior Counscls Fccs. (c) Staff expenscs (salary of pcon, clci (d) Travcling. (c) Purchase of Law Reports, Books a (f) Electricity.
(g) Stationcry.
Thc above list is not cxhaustivc and onc may vih the prosession. A prosessional may incu nature". A deduction in full is not allowal dcpreciation on such it.cms of cxpenditurc. Th cxpenditure:-
(a) Air-conditioncr.
(b) Fans (c) Table Lamps
(d) Office Furniture (e) Typewriters
(f) Computcrs.

d number or the passport number (whcre su pcrson 2 AA). When information is collccted in the abovc hic tax office and issue rcturns to be completed and
d to furnish a corrcct return of his or her income from person who furnishcs an incorrect rcturn "without halty for such an offence is twice the tax undercharged and.
e, a taxpayer who derives income from a profession s usually referred to as the "Fee Book". A professional S. It is only when he or she maintains arccord of thc ns against thc receipts of thc profession. Thc following
COSS
thly bills).
k or typist).
nd Journals.
hink of various other expenses incurrcd in conncction r certain items of cxpenditure which arc of a "capital plc on such cxpenditurc but he or she may claim c following are some examples of such items of capital

Page 169
s
With regard to all thc abovc-mcntioned itcms at thc approved ratics prescribed.
Depreciation on Law Reports.
Thc purchase of Law Reports now qualify ford it was decided that law rcports arc not "plant'an osthc Suprcmc Court followcdthcdccision oft in 1926 (1 T.C. 256).
In the United Kingdom, thc decision in Daph Furllong (50). T. C. 491) in 1977. Lord Denning "It secms to mc. in thc context of a profession. a lawyer's books- his set of law reports and hi
in Sri Lanka. thc Inland Rcvenuc Act No. 28 ( thc following as qualifying payment:-
(a) Paymcnt of subscription to any prost
(b) Purchase of professional books,jour
(c) On travel abroad for the purpose of
to the profession Subicct to approval
Thereforc. form the year of assessment 97 professional was entitled for a deduction as a q was entitled for deduction under thc head as "q assessablic incomic. Furthcr, under thic hcad includcd:-
(i) Purchase or Construction of a housc. (ii) lnsurance Premia paymcnts.
(iii) Purchasc of sharcs in approvcd undcrta
It was therefore advantagcous if purchase of b, made cintitled to depreciation. Representations revenuc who agrced to treat books and law rcpc Munby V. Furllong,
Travelling and Depreciation on Motor Cars us
ln Rajapakse v. C.I.T. (Il C.T.C. 29) dccidcd
cxpendi turc incurred by him or her in travclli dcduction. Thc ratio for this decision is that th
159

ps purchase, a professional could claim deprecation
:eprcciation at:33 l/3%. In Chclvanayakam V. C.I.T., d therefore not entitled to depreciation. This dccision nc English Casc, Daphnc v. Shawv, which vvas dccided
nc v. Shavv vvas overrulcd in the casc of Munby v.
stated:- he provision of "plant" should be so intcrpreted that
stcxt books - arc plant'".
f 1979 treated sums cxpcndcd by a professional on
ssional association.
nals and rcports.
articipating in any Scminar or Conference relating by the Ministcr of Finance (Scotion 3(1)).
9/80 thc purchase of books and law rcports by a ualifying payment. But the total amount a taxpayer ualifying Payment" was limited to 1/3rd of his or her
"Qualifying Payment", the following also were
kings.
oks and law reports is removed from this head and were made to the Commissioner-General of Inland rts as "plant" following thc decision of the U.K. casc
cd for travclling.
in 1934, it was hcld in thc case. of a lawyer, thc
g from thc residcnce to thc Courts is an allowable c placc where he or she resides is also a place of

Page 170
9.
"business" and the amount spent in travelli business i.e. the courts or Tribunals, is allow; cxpenditure in travelling on account of his pr on motor cars used for travelling.
Depreciation on other items.
As pointcd in paragraph 3, depreciation at tl which a professional purchases for use in hi
Attorneys - at - Law who do notarial work.
Somc Attorneys-at-Law arc involvcd in nota with clicnts monics. It is advisable that those clicnts' monics with that of his or hermonics, will help them to cxplain matters to the tax a
Basis of accounting of Income by Professio
A proscssional person may dcclare his or hcr But, hic or shc must continue the same basis
v. Fedcral Commissioncr of Taxation (1970 - that in thc case of a firm of accountants, the alonc was appropriatic to reflect its income solicitors and other professional men who pr torcturn income on the accrual basis (or the ca doctors, dentists and others who "might bc th on busincsscs", The decision in Henderson First.cnbcrg vs. Federal Commissioncr of tax in the case of a onc-man professional practice and that accordingly, thc cash basis was th practice of his own account with a Scorctary stressed that it was not dealing with a memb type considered in Henderson's casc, whicre of the partnership was donc by employces.
In Sri Lanka, however, the question of whctl an accrual basis or cash basis has not comic foi at-Law to agree the basis with the tax autho
Tax Avoidance & Tax Evasion.
Stephen Potter defincs tax avoidance as "thc Whcatcroft dcsines it in thc following terms

ng from one place of business' to another 'place of ble. Thercfore, a lavvycris entitled to claim in full thc ofession. But, however, depreciation is not allowable
e approved ratics is claimable on other items of plant S profession.
rial work and in thc course of their work, have to deal Attorneys-at-Law maintain scparatic bank accounts for or separation and identification may be difficult. This uthoritics if and when they are called upon to do so.
nals.
income. cither on the carnings basis or on a cash basis. throughout without change. In the case of Henderson 70 A.T.C. 4016) the High Court of Australia decidcd accrual basis (or thc carnings basis as it is also callcd) . Following this decision in Australia, accountants, ovide professional scrvices as a busincss would have rnings basis). This basis was not to apply to barristcrs, ought to be providing personal scivices than carrying
's casc was successfully challenged in the casc of ation (1976-76 A.T.C. 4141). Thcre, it was held that thc essential feature of income the "derived" is receipt 2 correct method of tax accounting for a solicitor in /Typist/Tclephonist as his only cmployce. The Court cr of a large partncrship carrying on a practice of thc a considcrable amount of thc work donc in the name
cra professional should declare his or her income on consideration in the Courts. I would advisc attorneysrities.
art of dodging tax without actually breaking the law.
G()

Page 171
"We must define tax avoidance as a transactio1
(a) avoids tax.
(b) is entercd into for the purpose of avoidi
the same purpose,
(c) is carried out lawfully, and
(d) is not a transaction which the Legislat
Sometimes, taxpayers do not avoid the paymen planned schemes as such postponemcnt itsclfg defined as -
"The commission or omission of an act knowing by the taxpayer is less than the taxpayable under This may bc accomplished by the deliberatic c cxpcnscs or allowances, and the delibcratic mis material facts."
S
Both tax avoidance and tax evasion is frowned up is depleted. Certain countries like Australia an regard to tax avoidance. But Sri Lanka has no suc to avoid his orhcrtaxlcgally. Tax evasion is resol provisions in the Tax Statute.
61

which,
ng taxor adopt some artificial or unusual form for
arc has intended to encourage."
of taxes but postpone their liabilities under preives them tax advantagcs., Tax evasion may be
y with the intent to deceive so that the tax reported he law, or a conspiracy to commit such an offence. mission of revenue, the fraudulent claiming of representation, concealm.cnt orwithholding of
on by tax authorities becausc the expected revenuc d Canada have enacted specific provisions with h provision. Therefore, it is open to a professional ted to by any onc will entail him or her to the penal

Page 172
CHAP
RATES
Individuals :
(i)
(ii)
(iii)
(iv)
(ν)
Years of Assessment l992/93 & 199
The tax free allowance for an individ 93 and 1993/94 is Rs. 42,000.
An employee is entitled for a tax frcc. an individual derives from cmploym
Rates of Tax for 1992/93 & 93/94.
(a) On the first Rs.21,000 of tax: (b) On the next Rs.24,000 taxab (c) On the next RS.24.000 oftax (d) On the balance of the taxable
Year of Assessment 1994/95
The tax free allowance for an indivic 1994/95 is Rs.42,000/= . For an employee the exemption is R. PAYE Tax will not become payable 7,500 permonth. (This is the proposal effect to this proposal has not been p
Rates of Tax for Year of Assessmen
Taxable Income
First Rs.35,000 Next Rs.25,000 Next Rs.25,000
Balance
Rate of Tax applicable to Expatriate, Expatriates arc liable to pay Income Sri Lanka.
Companics.
1.
Years of Assessment 1991/92, 1992/
1.

ER 34
OF TAX
3/94.
ual (who is not an employee) for both the years 1992:
allowance of Rs. 60,000. (This depends on the income cnt.)
ble income - O%
le income AO 20% able income - 30%
; income 35%
lual (who is not an employee) for year of assessment
s. 89,500/- per annum. by an cmployee where his/her income is less than Rs. announced in November 1993. The legislation giving assed by Parliament but will bc passed shortly.)
t 1994/95.
Rate
10%
20%
30%
35%
S. Tax at 5% during the first 3 years of employment in
}3& 1993/94,
62

Page 173
(i)
The rate of tax for a non-q 1992/93. The rate of tax so
(ii) Thc rate of tax for a non-r
(iii) The rate of tax for a quotc
1991/92 and this is not chi
The rate applicable for yea
(iv) The ratic of tax for Public (
1992/93.
(v) The rate of tax for Mutu
assessmcnt l992/93
(vi) Ratics of Advance Compan
(a) Small Companic
(b) Quoted Public C
(c) Non-Quoted Cor
and Mutual Fun
Year of Assessment 1994/95.
Thc proposal announced in Novembcr 1993 : tax rate of 35% to all companics. This ratc is companies and small companics.
Thc rate of Advance Company Tax as ap announced. It is likcly that the ratic of Act wi
163

uoted company is 45% for the year of assessment r year of assessment 1993/94 is 40%.
esident Company for Y/A 92/93 is 45%.
public Company is 40% from year of assessment anged. r of assessment 1992/93 is 40%
orporations is 45% from the year of asscssment
al Funds and Unit Trusts is 45% for the year of
y Tax for year of assessment 1992/93.
S 25%
ompanies 33 1/3%, mpanies, Unit Trusts
ds 40%
as being applicable to the year 1994/95 is a uniform applicable to quoted public companics, non-quoted
plicable to year of assessment 1994/95 was not bc fixed at a uniform rate betwccn 25% to 33 l/3%.

Page 174
2.1
2.2
5.1
CHAP'
TAX CHARGES FORY
Budget 1994
Legislation giving effect to the budget prop passed by Parliament. It is proposed to giv 1993 for the bencfit of the readers.
Company taxation
Ratics of Tax
The rate of tax for all Companics will be small Companies which up to now were e. Advance Company Tax (ACT) was not ann is a uniform rate between 25% to 33 1/3%
Surcharge
The Surcharge on Inconc Tax at lis'yo will
Personal Tax
The tax credit for employees which is now 6,000/- as from 1st April 1994. On the bas remuncration of less that Rs. 7,500/- per n
Rates of Tax for individuals
The proposed rate of tax for 1994/95 is as
Taxable income
First Rs... 35.000/= Next Rs... 25,000/= Ncxt Rs, 25,000/= Balance
Taxation of the Export Scctor
Tax Holidays will not be granted for export the Inland Revenue Act in the future Comp wcather under the BOI Law or the Inland

TER 35
EAR ASSESSMENT 94/95
osals for the year of assessment 1994/95 has not been 2 the details as announced in the budget in November
$5% from list April 1994. This rate will apply also to njoying a concessionary rate of 33 1/3%. The ratic of ounced in the budget. The rate that will be announccd
continue for the year of assessment l994/95.
available is Rs. 1800/=. This is to be increased to Rs. is of this proposal employees who receive a monthly nonth will not be liable to PAYEE Tax.
follows :-
Ratc
10% 20% 30% 35%
scither under the Board of Investment (BOI) or undcr panics and Individuals who are enjoying tax holidays Revenue Act No. 28 of 1979 could either :-
64

Page 175
5.2
(a) Continue with thc tax holiday for thc
O
(b) If they have an unexpired tax holiday forcgo thc tax holiday for such perio Twenty (20) years from 1st April 19
New Enterprises
New Enterprises engaged in
(a) the manufacture and export of non-ti (b) export trading of such products; or (c) the export of spccifica services
will be liable to pay tax at 15% for a period
6

balance period.
period exceeding four (4) years as at 1st April 1994,
d and opt to pay tax at a rate of 10% for a period of )4.
aditional products;
of 20 years commcncing from 1st April 1994.

Page 176
CHAP
TAX AM
An Act entitled Tax Amnesty (Housing: passed by Parliament, The object of this
(a) Tax concessions to persons who use
in the construction of houses or com
(b) Tax concessions to persons who use
in the renovation of commercial buil
Persons to whom the Tax Amnesty act a
The Act applies to any person (companies respect of the following Profits and income
(a) Profits and income which arose or acc
99.
(b) Which under the Inland Revenue Ac
(c) In respect of such profits and incomes Revenuc Act or has not disclosed thc Inland Revenue Act.
The benefits conferred by the Tax Amnesty any investigation was pending on October tax payable under the Inland Revenue Act (
Purposes for which the Profit and Income
Section 3 of Act provided that any person (i may use the whole or any part of the profits
(i) The construction of one or more ho excccd one hundred and twenty five of a hectrc in extent and owned by s
(ii) The construction ofonic or morc build
internal floor area of cach of which mcters, on land not excccding suc construction by thc Urban Developm
l(

ER 36
NESTY
nd Commercial buildings) Act No. 30 of 1992 was Act is to provide for:-
he whole or part of their relevant profits and income mcrcial buildings, or
(he whole or part of their rclevant profits and income dings.
pplies.
, bodics of persons, partnerships or individuals) in of such pcrson:-
nued to or was derived by such person before list April
it. No. 28 of 1979 was chargcable with income tax.
uch person has not furnished arcturn underthc Inland profits and income in the return furnished under the
Act cannot be availcd by persons in relation to whom st, 1991 for any alleged or suspected evasion of any pr Turnover tax Act.
may be used.
individual, company, partnership or body of persons)
for any one or more of the following purposes:-
uscs, the internal floor of each such house does not square met.crs on land not excccding one forticth part uch person.
ling cach consisting of two or morc housing units, the docs not excccd onc hundred and twenty five square h cxtent as is approved for the purposes of such nent Authority (UDA) and owned by such person.

Page 177
(iii)
(iv)
(v)
(vi)
The purchasc, for occupation as a resic in paragraph (i) constructcd by a qual
The purchase, for occupation as a resi to in paragraph (ii) above and compris
The construction, at a cost not cxceedin building cach such building bcing a bu for thc purpose of levying rates on lan purposes of such construction by the U such person.
The renovation at a cost not exceeding building which is assessed as a commc owned by such person. Any person who the construction or rcnovation of the rc
St October 1994.
Any person who constructs any houses or b renovates any building (which is rescrred to i furnish the following documents to thc Comm of the complction of the Construction:-
(a)
(b)
A declaration in the form Sct out in th construction or rcnovation. (A copy of
A certificate to be obtained from the U of a local authority authorised in that b{ The Urban Development Authority (U authoritics are by the Act cmpowercd til 5 of the Act such person who come unc taxcs and prosecutions.
The Urban Development Authority or any pu an application made by a person who has cons 3 (1)(a), (b) or(e) or by a person who has purch or by a pcrson who has renovated any buildin certificatc to such pcrson certifying the folloy
(a)
(b)
In the case of a construction that thcamc is not cxcessive having regard to the p
In the case of the purchase of a hous
conforms to the rcquircments of Sectio does not cxcccd the market value on til
167

lence for himsclf of any house which is rescrred to fied person.
lence for himself of any such housing unit referred cd in a building constructed by a qualified person.
g five million rupees (Rs. 5,000,000) of one or more ilding which is assessed as a commercial premises d not cxceeding such extent as is approved for the rban Dcvclopment Authority (UDA) and owned by
, five million rupees, of a derelict building, being a rcial premises for thc purposes of levying rates and wishes to come under this amnesty should completc sidential building or commercial - building before
uilding or purchases any hose or housing unit or in paragraphs (i) to above) is obliged by the Act to issioncr-General of inland Revenue within 90 days
e Act Sctting out thc amount he has spent for such
thc form is attached to this Chapter)
rban Development Authority (UDA) or any officer :half by thc Urban Development Authority (UDA). DA). The Urban Development Authority (and local ) issue Certificatcs (Scotion 4). By virtue of Section lcr the amncsty are indemnifica against paymcnt of
blic officer or officer of a local authority shall on tructed any house or building referred to in Section ascda housing unit referred to in Section 3(1)(a),(b) gas is referred to in Section 3(1)(a) or (b) issues a ving:-
unt declared to have been used for such construction revailing costs of building.
2 or housing unit that such house or housing unit n3(1)(a) or (b) of the Act and the amount declared c date of purchase of such house or housing unit.

Page 178
(c)
In thc case of the renovation of a build sct out in Scction 3(1)(f), and that thcal is not cxcessive having regard to thc
The certificate issued under Section 4(l) of particulars:-
(a)
the name, address and national identit for the certificate.
(c) the internal floor area (excluding the th and, in the case of a building containin (cxcluding the thickncss of the outer
(d) the extent of land on which such hous cxtcnt requires the approval of the Ur bccn obtaincd,
(e) whether such house or building has bc whethcr such house or building has bc
(s) whcthcrsuch house or building is situat of the Urban Development Authority
(g) in the case of a purchase of a house or card or rcgistration number of the scl
(h) the amount declared to have bccnusc( renovation, as the casc may bc.
5. Indemnification
Evcry pcrson who is entitled to avail of the following bcncfits:-
(i)
(ii)
(iii)
Is not liable to pay Income Tax or Su ending on or before 31st March 99 construction or renovation.
Is not liable to pay Wealth Tax or Su ending on or before 31st March 1991
ls not liable to pay any Turnover tax respcct of the turnovcr from which st
l6

ng that such building conforms to the requirements nount declared to have bccinused for such renovation revailing costs of building.
thc Tax Amnesty Act shall contain the following
card or registration number of the person applying
ickncss of the outer walls) or such house, or building g more than onc housing unit, the internal floor arca valls) os cach such unit;
c or building has becn constructed and where such ban Development Authority that such approval has
cn assessed for purposes of levying rates, and if so,
:en assessed as residential or commcrcial premises.
cd in an urban developmentarea, within the meaning act,
housing unit the name, address and national identity ler
2
by the applicant for such construction, purchase or
bencfits of the Tax Amnesty Act is entitled to the
rcharge on Income Tax for any year of assessment l in respcct of the profits and income used for the
rcharge on Wealth Tax for any year of assessment
indcr the turnovcrtax Act up to 31st March 1991 in ich profits and income arose.

Page 179
(iv) Is not liable to any prosecution or to any Act. Surcharge on Income Tax Act or S
169

penalty for any offence under the Inland Revenue urcharge on Wealth Tax Act or Turnover Tax Act.

Page 180
DECLARATION FORM UNDER SECTI NO. 30
Tax Amnesty (Hosing a
Act No. 3
Declaration und
Incomc Tax File No. (if any)...................................
National Identity Card No. (if individual)...............
Name and Registration No. (if other than individua
(Full
of................................................................................................................................ (Ada
(If other than individual) 1, Mr/Mrs/Miss..................
S S SSL S LS S S S S S S S SLS SL S S S S S SS SS SSL SSL SSL S S SLLS SL SS SL SL 0LL SLL 0SLLSLS LS SLSL SL SL SL SL SL SL 0SLL S S LLL L0L LSLL SL SLS S SLS S LLS 0 SL LLLS SL 0SL SL SL SLS S SL SLS SLS being
(Full Name)
of SL SL SL SS LSL S S S S S S S S S S S S S S S SS S S LSL S SSSS LSL LSL S S S S S S
(Name of company/part
Submithcrewith a certificate from the Urban Tax Amnesty (Housing and Commercial Buildings
(a) house/building consisting of housing units
by me .........................................................
(name of company)
(partnership/body of persons)
(b) house/housing unit purchased by me.

ON3(2)(a) OF THE TAX AMNESTY ACT OF 1992
ld Commercial Buildings)
() of 1992.
r Section 3 (2)(a)
nership /lbody of persons)
Development Authority issued under section 4 of the ) Act No. 30 of 1992 in respcct of
constructed
7()

Page 181
(c) commercial building constructed/renovated
(name of company/partnership,
and hereby declarc that I/
(name of company/partnership/
have/has used, for such construction/purchases/renc sum of rupees........................................................... (in w
(RS.................................................................................................................................... ),
(in figures) my relevant profits and income. the relevant profit and income of..............................
(name of company/partnership/lbody of pi
with in the meaning of that expression in the said A. my residcnce.
I request that If.......................................................... (name of company/partnership/body ofpi
be granted the indemnifications, set out in section 5
(RS.................................................................................................................... ) sc
(in figures)
7

S SS SS SSLS SL S SL S S S S S S S S S S S S S S S S S S S S SL S SS SL SL S SL S SL S SL S S S S S S S S S LSL S S LS S SLLLSL LS S SL L S SS S SS SS SSL SSL S S S S S S S S S S LSL S LSLSLSL LSLSSSLLLSLLLLLSLLLLLL
body of persons)
body of persons/individual)
ovation, a
arsons)
ct and that I shall occupy such house/housing unit as
C C 0 C C M M S M C M C C L 0 LSLLC C LSL CCCC 00 CC C LSS C SL CL CCLCSL L S S S S S S SS SS L L SLL 0 S L S S LS S S S S L SLS L S S S S SSS SS SS SSL SSL S SL LL SLSLS
• • e s - - - - - - - - - - - - - - - - a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
artnership/body of persons)
Signature.

Page 182
CHAP'
SURC)
Surcharge for years of assessment 1989,
In 1989 the Surchargc on Income Tax Act on every person liable to income Tax for t at which Surcharge is payable is liš'/6 of
follows:-
(a) not less than 50% of the surchargc is the year of assessment 989/90, and
(b) the balance due for the year of assc
(c) not less than 50% of the surcharge is
the year of assessment 1990/9l); anc
(d) the balance due for the year of asses.
Surcharge for year of assessment 1991/
Surcharge on Income Tax (Amcndmcnt)
extending the levy of surcharge for the yea is payable is lis'/6 of thc income tax payab
(a) not less than 50% of thc surcharge is
(b) the balance is payable on or before l
Surcharge for Year of Assessment 1992,
Surcharge on Income Tax (Amendment) cxtending the levy surcharge for thcycaro payable is 15% of the income tax payable.
(a) not less than 50% of the Surchargc i.
(b) the balance is payable on or before l

TER 37
ARGE
90 and 1990/91.
No. 7 of 1989 was introduccd imposing a Surcharge
he years of assessment 1989/90 & 1990/91. Thc rate thc income tax payable. This amount is payable as
payable on or before listh August, 1989 (in respect of
SSment 989/90 on or before 15th November 1989.
payable on of before lifth August, 1990 (in respect of
Sment 1990/91 on or before 15th November 1990.
)2.
Act No. 7 of 99 was introduced in March l'991 r of assessment l991/92. The rate at which surcharge le. This amount is payable as follows:
payable on or before 15th August, 1991; and
5h November, l991.
193.
Act No.32 of 1992 was introduced in May 1992 fasscssment 1992/93. The rate at which surcharge is The amount is payable as follows:-
s payable on or before 15h August, 1992; and
5th November, 1992.
72

Page 183
Appel
Advance Ruli the Commissioner - Gel
Section 2 - Off Shore Companies - Liability to ta
Where Business Transacted
In terms of the Companies' Act, off-shore com purposes of income tax, mere fact of registra evidence that business is not transacted in Sri thic company.
Residence
A company registered as an off-shore compa purposes if it was not incorporatcd in Sri Lan
(a) its registered or principal office is not i
(b) the control and management of its busi
A company which has registered an office in S not, on that account alone, be treated as residci and if it was incorporated outside Sri Lanka.
Tax Liability
In the case of an off-shore company which is
the business of which consists solcly of the pu to incomc tax in Sri Lanka if no Sales are effe
Section 3(a) - Central Bank Securities
Interest accruing to and thc discounts received to tax. If the securities arc sold before maturit will be treated as income.
Section 3(a) - Income - Sale of Nadun Trees in E
Nadun trces in a rubber estate from part of th cannot bc treated as normal agricultural incol rubber estate or gunnys in a paddy mill. But adventure in the nature of trade depends on th
17

ndix I
ngs Given by neral of Inland Revenue
panics cannot do business in Sri Lanka. However, for tion as an off-shore company will not be conclusive Lanka This would depend on the actual activities of
ny will be treated as a non-resident company for tax ka, and
in Sri Lanka, and
nesses are exercised outside Sri Lanka.
ri Lanka for the purposes of sections 241 and 242 will nt company, if its principal office is outside Sri Lanka
treated for tax purposes as a non-resident company, rchase and sale of goods, there would be no liability icted in Sri Lanka.
by an investorin Central Bank Securities will be liable y, the difference between the sale price and the cost
states
he capital to the land. Accordingly it's sale proceeds me, such as sale proceeds of old, uprooted trees in a E whether it is a capital receipt or receipts from an he circumstances of each case.

Page 184
Section 7(4) (d) - Capital Gains
In the case of property divested by Land R purpose of relicfunder Section 7(4), in resp thc divesting of the property.
Section 9(1) (k) - Exemption of Emoluments in )
To qualify for cxemption emoluments earne Lanka in the form of foreign currency. No. c. out of such emoluments and brought to Sri I
Section 10(d) and 15(ccc) - Exemption
Emoluments and fees carned in foreign currc in scction 15 (ccc) of thc Inland Rcvcnuc Ac Lanka currency, cannot be treated as "sums hcld by him outside Sri Lanka" within the m
Section 12 (1)(b) - Exemption of Income from I
Where a house, the income of which excmpt, excmption is available to the owner of thch
Section 14 (a)(ii) - Exemption - Capital Gains
In the case of sale of a house which is co-ow be exempt from tax in the hands of each such conditions of the Section are satisfied. The co this Section in respect of any subsequent sal
Section 15 (ccc) - Exemptions - Emoluments an
Profession or vocation.
For the purpose of the above Scction, to dcc profession or not, some importance has to be a of an organiscd profession' with a recognised recognised standard of conduct enforced wh
Scction 16 (a) - Excmptions
For the purpose of this section the exemptiol (i.e. the organization which runs the hotel) a
Section 20A - Application
When a company gets exemption under claus

eform Commission the period of ownership for the 2ct of capital gains, will be reckoned from the date of
Foreign Currency
d abroad must be paid in Sri Lanka, or remitted to Sri xemption will be available if any goods are purchased
anka.
:ncy by an individual or partnership, as are referred to t No. 28 of 1979, and subsequently converted into Sri obtained by him by the exchange of foreign currency eaning of the expression in section 10(d) of the Act.
Land and Improvements
is sold the new owner is entitled to the exemption. The ouse not the builder.
ned by a number of individuals, the capital gains will individual under Section l4 (a)(ii), provided the other )-owners will not be eligible to claim exemption under c of houscs.
d fees earned in foreign currency in the course of
ide whether an individual or partnership exercises a ttachcd to the fact that the particular personisa member standard of ability enforced before he can enterit and ile he is practising in it".
n is granted to the undertaking that operates the hotel nd not to the owner of the building.
e 17 of GCEC Act which over rides the Inland Revenue
74

Page 185
Act, it can not change this agreement, and claim Act subscquently.
Section 21 - Relief on Sale of Houses - Partnershi
If an undertaking qualifying for rc.licfunder Sc is entitled to thc rclics undcrSection 21.
Section 21 - Exemption of Profits from the Const
The Profit/Loss on construction and sale of h construction from the gross proceeds on sale. land plus cxpcnses on construction. Thc cost c applics whether the undertaking is carrica on
Section 23 - Expenses Incurred by a Lawyer on ti
Lawyer's books can be treated as "Plant" and Scction 23 (l) (cce), if they are not replaccmc
Section 23 (1) - Losses on Forward Booking of Fo
Any losses incurred by forward booking of fore as it is an expense in the production of income
Section 23 (1) - Expenditure in the Production of
Where the production of a film commences i subsequent year of assessment, the expenses o progress for sct off against rcccipts from it's production cannot be treated as a "loss" and sc
Section 23 (1) - Deductions - Licence Fees
The licencc fee paid annually to thc Governme. on the business is an allow able deduction. It is enduring bcnesit.
Section 23 (1) (e) - Capital Allowances - Change i
When new partners are admitted to a proprictor a sale of a proportionate sharc of the business. E change. Adjustmcnt on the capital allowance adjustcd for unexpired depreciation in the cont revalued on the date of the change, for purpos
175

exemption under Section 20A of the Inland Revenue
D
action 21 is carried on by a partnership, each partner
ruction and First Sale of Certain Houses
ouses will be computed by deducting the cost of The cost of construction should be the actual cost of :annot be computed on an imputed value basis. The by an individual or a partncrship.
he purchase of books
331/3% depreciation rate can be applied in terms of }ntS.
reign Exchange
ign cxchange by exporters is an allowable deduction,
s مح
Films
n one year of assessment and its exhibition is in a fproduction should be carried forward as work-inexhibition in a subsequent year. The expenses of it off against other income of that year.
nt Agent by a tavern keeperto obtain licence to carry not a capital payment to acquirc a right or creatc and
n Partnership
y concern, there is no cessation of business. It is only 3usiness goes on a continuous basis with a structural granted by way of L.S.D. on the assets should be inuing business The assets of the business should be es of adjustmcnts that are due,

Page 186
Section 23 (1) (c) - Capital Allowances, Machin
A person who carries on the business of hiri be entitled to capital allowances in respect of and used in the business of hiring. To be entil person concerned is carrying on a busincSS
Section 23(1) (n) - Travelling - Reimbursement
Notional cntries to Salaries Account and veh employer of private travelling cxpenses of a
Scction 23 (1) (0) - Company Formation expens
Company formation expenses include
(a) Costofdrawing up and printing, mem (
fees.
(b) share issue expenses
(c) stamp duty on issue of shares
(d) legal and professional charges (as ar.
Company)
(e) cost of prospectus, brokerage and oth
(f) Value of free issue of shares to prom
but does not include
(g) expenses of forcign collaborators who
formation of the Company
(h) cost of feasibility and project reports
(i) otherprc-commencementexpenses su
and Sctting up of accounting system.
(g). (h) and (i) are not deductible and cannot year of operation of the business.
Expenses similar to (b), (c), (d), (e)and (f) inc with the fresh issue of shares are not allowa

cry used in a hiring business
ng plant, machinery and fixtures to other persons, will such plant. Machinery and fixtures, purchascd by him led to these allowances, it must be cstablishcd that the and not merely receiving income from rent.
icle Maintenance account are not reimbursement to an in employee.
CS
orandum and articles of Association and of registration
2 incurred in connection with the formation of the
er expenses in connection with public issue of shares.
OterS.
visit Sri Lanka for consultation in connection with the
chas staff recruitment staff training, staff remuneration
be carried forward and taken into account in the first
:urred by a company already in existence in connection ble.
76

Page 187
Section 23 (3) - Profit on sale of fixed assets
A capital gain arising from the change of owne of which no allowance for depreciation has bc, Capital gains arising from the sale of a list use allowance is granted, is liable to income tax.
Section 23 (7) (d) - Capital Allowances
When an assessee enters into a lease agreem undertaking for the production of profits and i the lease terminates and the possession of the since he was the owner of the asset through-c line depreciation allowance, if any, under Sec
Section 24(1)(d) - Entertainment Expense
The cxpense incurred offood and liquor (mostl or solicit business from bank.crs are cntertainm promotion expenses.
Section 24(1)(d) - Entertainment - Casino
The cost of free meals and liquor served by aca be allowed as a deduction.
Section 24 (1) (h) - Staff Training, Cost of
If the training of staff is not for bringing up to acquiring a training that is not there at all, the trcatcd as an allowable dcduction.
Section 24 (1) (h) - Loss on Foreign Exchal
There is no provision in the act to allow as transactions. The differcnce in exchange will is a profit.
Scction 24 (1) (n) - Travelling Expenses,
Non-Resident Directors
Travelling and Accommodation expenses of of a Sterling Company to attcnd onc board me thc prosits of the local subsidiary, ifall the con provisions" law No. 9 of 1975 arc satisficd.
17

rship of a motor vehicle used in a business in respect engranted, will not be liable to income tax. However, i in business and in respect of which no depreciation
ent n respect of a capital asset which he uses in an ncome, there is a disposal of the capital assets. When isset reverts to the owner, no capital allowance is due ut, But, he should, in equity, be granted the straight :tion 23 (1) (e).
yathotels), by money brokering business to influence ent expenditure, even though it is labelled as business
sino to members is entertainment expenses and cannot
date a training previously received by them, but for
expenses incurred are capital in nature and cannot be
nge
an expense, loss on foreign exchange on capital be disallowed if it is a loss and will not be taxed if it
non-resident directors of a wholly owned subsidiary cting a year in Sri Lanka, is allowable in quantifying ditions stipulated in the Foreign Companies "Special
ar

Page 188
Section 29 - Annuity to Wife. in Return for Full
The words "in return for full consideration in or return of capital.
Section 31 (2) (d) - Qualifying Payments/P In Approved Undertak
When a parent purchases shares in an approv the amount spent to purchase shares in his ch a qualifying payment deduction for that amo
Section 31 (2) (f) Qualifying Payments -
A house does not cease to be a house merely guests arc accommodated. A building which is Relicfshould be allowcd on the facts know documents available, not by reference to t construction is completed.
Section 31 (2) (e) and (f) - Qualifying Paym
Money spent in extending and altering an cxpenses on the construction of a house andw Section 31 (2) (f).
Section 31 (2) (f) - Qualifying Payments -
Relics is available under the above section, cit is obtained on one item above c.g. the first sitc a house, as long as it is within the time bar pe claim should bc paid forth with together with
Section 31 (2) (g) - Qualifying Payment R(
No qualifying payment rclicf under Section consideration for the purchase or constructio spending on the purchase or construction will
Section 31 (2) (i) - Qualifying Payments
Contributions to approved Providcnt/Pcnsior
employce's gross salary including all allow: travelling.

Consideration in Money or Money's Worth.
money or money's worth" excludes capital payments
'urchases of Shares.
ing for Children.
cd undertaking jointly in his and his children's name, ildren's name is a gift and the parent is not entitled or unt.
Housing
because it is uscd as a flat or a house in which paying clearly designed to bcused as a business is nota housen at thc time of construction such as plans and other he use to which the building is put long after the
ents - Housing
already constructed house cannot be considered as ould not be considered as a qualifying payment under
Housing
hcron the purchase of first site or a first house. If relief ... lt can be with drawal in favour of the other item, i.e. iod. The additional tax payable on withdrawal of the
any penalty.
lief- Housing
31 (2) (g) will be granted to a spousc who provides
in of a house by the other spouse. Only that spousc l be eligible to claim the rclief.
Funds mean Payments made as a percentage of an ances other than overtime, incentive payments and
78

Page 189
Section 32(2) - Concessional Rate of Tax for
Section 32 (2) applies in all cases of ordinary not, the dccisive factor is whether the empl termination of services, what is matcrial is thc to the retirement.
Section 32 (2) - Retiring benefits
(a) All sums paid to a retiring employee from for the conccssionary rates tax if such su up to 20% of salary from 0.04.82 provi scheme uniformly applicable to all indi
(b) "A scheme uniformly applicable to all i of contributions is made to all employces having uniformity only within grades osc of tax.
Section 32 (4) - Remission of Tax
Institutions that qualify for a remission charactcristics :-
(a) the disbursements to members have a
what is refunded is the members contr
(b) the institution must have savings as its
Section 32 (5) - and (6)
Government securities includes treasury Bills
Section 32 (5) and (6)
"Investment income" includes all interest irrespcctive of whciher they are members or
Section 33 - Companies Pre - Incorporatic
Pre-incorporation profits of a Company are li; owners of the undertaking, prior to such undc
17

Refunds of Provident Fund
retirement. To decide whether there is a retirement or
oycr has given noticc to the provident fund of the fact of retirement and not the circumstance which lcd
an approved or regulated Provident Fund will qualify |ms reprcsent contributions on behalf ofan employce ided that such contributions are in accordance with a viduals, employed by such employer.
individuals" is one under which the same percentage
irrespective of thcirgradc. Payments out of a scheme mployees will not qualify for the concessionery ratics
of tax under Section 32 (4) have two broad
direct relationship to their contributions - invariably ibution together with interest there on.
real purpose.
, but does include Central Bank Securities.
received or credited from giving loans to person non-mcmbers of that Fund or society.
in Profits
able to tax, not on the Company but on the owner or rtaking being acquircd by the Company.

Page 190
Section 33 (I) (c) - Public Corporation T:
What is meant by "balance of its profits" is book profits.
Section 41 - Deduction of Tax Liabilitics
Computing Net Wealth
The departmental practice is to allow as a d liabilities due on the valuation date. If an add valuation date, such tax cannot be allowed a
Section 43 - Wealth Tax
Money received from foreign bodies by an Ir property as trustees of a trust, during the pel
Section 66 (I) - Assessment on a Partnership
Where an assessment is made on a partnershi partner. The notice of assessment must be in Arrack Tavern.
Section 67 (7)
A non-citizen who returns to Sri Lanka and r( be deemed to "commence employment" for
Section 68 - Liability of non-resident per
Where a person acts on behalf of a non-resid person is able to make a successful tender fo Lanka or to a government sponsored Corpor liable to tax. Howevcrif the non-resident pers for the supply of goods, either to the Govc Corporation or Institution without the aid of respect of that non-resident person.
Section 90 () - Club and Siniharnstitutio
To consider 75% limit of income under Sect should be taken into account. The profit or normat way for purposes of interpreting Se transactions of members and non-members

Χ
he balance of the adjusted profits. It does not refer to
eduction in computing net wealth the ascertained tax litional liability is agreed upon subsequently, after the s a deduction in the ascertaintment of net wealth.
Istitute for its various projects does not form part of its iod it is received and used.
p, it is not valid to make it in the name of the precedent the name of the business. For example the Narammala
2sumes employment under the same employer will not
the purposes of this Section.
SOS
2nt person and by his instrumentality, the non-resident r the supply of goods, either to the Government of Sri ation or linstitution, the non-resident person becomes on tenders successfully on a principal to principal basis rnment of Sri Lanka or to a governmcnt sponsored a local Agent, no liability to Sri Lanka tax will arise in
S
ion 90 "gross receipts" before allowing any expenses loss of the deemed business should be calculated the
ction 90 (l). It is advisable to view the income from as including all forms of investment income.
80

Page 191
Section 81 and 113A - Interest paid or credited t
Under Section 81 interest paid or credited to deduction at 331/3% Under Section l l3 A wi
Ruled that in the case of non-resident person r A and tax is deductible at 33 l/3%.
Scction 113 - Directors and Partners
A working director of a Company or a workin and subject to PAYE deduction and eligible f
Section 113 - Withholding Tax on Interest
(l) Interest receivable from Certificates of
(2) Interest from short-term deposits includ
(3) Withholding Tax deducted during Year ( income tax for Year of Assessment 86/8 accruable for a prior period, assessee w.
(4) Interest on long-term deposits will not
credited. Assessments for all such accrl received. No penalties will be levied on si date in the year of receipt of the interest
Article 20 DTR Agreement U.K.
Exempts a "Professor or teacher who visits"a ( the purposes of teaching - A person to be so e prior to his arrival. A person not deemed so but not considered as such for the purposes of Arti other Agreements.
l Scction 3 (g) - Rents
An individual who owns a market building will whole or part of the building is converted intos a daily basis, and the provision of maintenance, alone, change the source from 'rents' to busine
This matter is however, largely a question of
2. Section 8 (c) (iv) - Foreign Currency Banki
18

0 a non-resident person
a non-resident person or-partnership is liable to a hholding Tax on such interest is deductible at 20%
eceiving interest Section 81 over-rides Section l 13
g partner in a partnership is considered an employee or Provident Fund contributions.
Deposits are not subject to Withholding Tax.
ing call money will be subject to Withholding tax.
of Assessment 86/87 will normally be set off against 7 However, where tax has been deducted on interest ill be cntitled to a set off against such prior year.
be assessed where such interest has not been paid/ lable years will be made only after such interest is uch delayed payments provided tax is paid by the due
ontracting states for a period of less than 2 years for kempted must bc deemed a "teacher" or "professor" takes up a teaching appointment after his arrival will cles 20 of the UK Agreement and similar Articles in
1 generally derive income from "rents'. The fact that eparate stalls, which are let out on along term or on sccurity and other facilities do not, for those reasons 'ss income.
act.
ng Units

Page 192
1. Offshore Transactions
The income reccipts of FCBU by way ( received in respect of transactions with Lanka branches of non-resident compa transactions.
2. Interest received by onc FCBU from
The intcrest received by one FCBU from
3. Interest payable by an FCBU to its H to other persons out of Sri Lanka or
Such proportion of the above mentioned of a FCBU would be allowed as a dedu
4. Interest received by a FCBU from lo,
Such interest would be taxable in the h computing liability of the paying comm
5. Losses incurred by a FCBU
A loss incurred by an FCBU from its e. liable income, if any of the FCBU or fr
Section 9 (1) (b) - Commissions paid to Sal
Commissions based on sales effected, recc represcntatives of State Corporations from pal if the contract of employment specifically pri
Section 1 () (d) - Special Accounts
Emoluments and secs carned in forcign curre to in Section 5 (ccc) and subsequently conve obtained by him by exchange of forcign cui meaning of that expression in scction () (d) Section 15 (ccc) in receipt of emoluments an maintain a 'special account' with the proceeds
Section 10 (d) - Special Accounts
The excmption of interest rcferred to in Sectio made with sums obtaincd by the cxchangc off not apply in respect of interest.
8

of interest, commission, discounts, exchange profits persons who reside out of Sri Lanka (other than Sri nies) will be considered as income from offshore
another
another FCBU (of another Bank) is exempt from tax.
ead Office abroad, its own Commercial Bank, or o in Sri Lanka
payments as is attributable to the non-cxemptincome ction in arriving at its liable income.
ans givento another commercial bank
ands of thc FCBU and would also be deductible in jercial bank.
xempt off-shore transactions is not deductible from om thc income of its commercial bank.
es Representatives State Corporations
ived in addition to the monthly salary, by sales rt thcir emoluments and are exempt from incomc tax, ovides for payment of such commissions.
ncy by an individual (or partnership) as are referred rted into Sri Lanka rupces cannotbctrcatcd as "sums rency hold by him outside Sri Lanka," with in the of thc Act. Accordingly, an individual referred to in i fees in foreign currency, is not eligible to open and of forcign currency converted into Sri Lanka rupees.
in 10 (d) applies only in respect of intereston deposits orcign currency hcld by the person concerned. It does

Page 193
10.
(a) on sums credited as interest on such de
(b) from investments to which section lis (
Section 10 (g) - Interest on moneys in a Fo
A deduction under Section 8l of the Act need
or partnership on money's lying to his credit ir Unit.
Section 11 (b) - Exempt Dividends
Exempt dividend should be paid within the peri that thc company declaring the dividcnds shou Crediting the amount of the dividends to the sl mere book cntry and docs not amount to such Scction l l (b).
Section 11 (b) - Exempt Dividends
The expression 'out of profits and income of the in Scction l l (b) rcfers only to adjusted prol applicable to excmpt profits from all sources
Section 11 (b) - Exempt Dividends
The Expression 'one year thcreastcras used in: The pcriod of one year should be calculated fr e.g. the cxcmption period cinds on 25th March is declared on or before 25th March, 1991, sharcholder who receives the dividcnd.
Section 11 (c)
Thc period of one year referred to in this scctic of assessment in which the excmpt dividend w If for cxamplc, the above dividend was recci assessmcnt l989/90) and thc dividend sorcee or beforc31st March, 1991 (year of assessmen of the share holder.
Scction 12 - Exemption of Net Annual Valu
Section 12 provides that there shall be exemp
18

posits.
)) applies.
eign Currency Banking Unit
not be made where any interest is paid to any person foreign currency in any Foreign Currency Banking
pd stipulated in Section l l (b). The word 'paid 'means ld part with funds cqual in amount to such dividends. hareholder's account in the books of this company is dividend having been paid' within the meaning of
company which are exempt from income tax' as used its for tax purposes. This interpretation is equally including profits covered by Section 20 of the Act.
Section l l (b) does not refer to an year of assessment. om the date on which the exempt period ends. If, for 1990 and thc divinded out of such excmpt profits such dividend will be exempt in the hands of the
In means the year of assessment succeeding the year as received by the company declaring the dividend. ved by company "B' on 20th March 1990 (year of vcd is declared by company 'B' to a share holder in 1990/91), such dividend will be exempt in the hands
from income tax -

Page 194
12.
13.
14.
15.
16.
17.
(i) the net annual valuc of not more than (
on behalf of an individual.
(ii) the net annual value of any house owne in which the construction of that hous immcdiately succeeding that year of a
If a person isin occupation of two houses, one still be possible for him to claim the excmptic otherhousc house which qualifies under par
Section 14 (a)(i) - Capital Gains exemptio
Capital gains excmption could also be claim plan approved as residential house) prior to it to such sale, used for commercial purposes.
Section 14 (a)(ii) - Capital Gains exempti
Capital gains arising on the sale of a house ov (a)(ii). The individual referred to in Scotion of the cxemption granted by that section.
Section 14(a)(ii) Capital Gains exemption
The capital gains arising on the sale of a hous c.g. the ground floor of which used as an office Section (l4(a) (ii).
Section 14 (a) xv) - (also proviso to Sectio Conversion of a business
The phrascs 'upon the convcrsion' and ' on transfer of business to a company say 5 year conversion 'or' on convcrsion'.
Section 14 (a) (xv) - Capital gains exempti company
The provisions of Section 14 (a) (xv) do not limited liability company, already in existen
Scction 14 (a) (xvi) - Exemption of capital
Where apcrsons has bought a block of land 2 land in, say 1980, sclls the entire property, arc thc owner of the land for more than 25 year

ne place of residence owned by, and occupied by or
land occupica by an individual, for year of assessment 2 was completed and for the six years of assessment SCSS ment.
fwhich does not qualify underparagraph (ii), it would n in relation to that house underparagraph (i) and the
graph (ii)
n on sale of houses
2d on the sale of a newly constructed house (building is occupation as a residence, provided it has not prior
)n on sale of houses
wned by an individual qualify for exemption under 14 4 (a) (ii) being non-resident is no bar to the opcration
on sale of houses.
ic, part of which is used for non residential purposes.
and the upper floor as a residence) is not excmpt undcr
| 23 (3) (bbb)
conversion' mean immediately after conversion. A after its incorporation would not be a transfer upon
)n on conversion of a business into limited liability
apply to capital gains arising on the absorption by a e, of a business run by a proprietor or a partnership.
gains on change of ownership of property
5 years back and puts up commercial buildings on that capital gains arising exempt for the reason that he was
84

Page 195
18.
9.
20.
2.
22.
Ruling : The exemption available in terms separately in respect of the land a commercial building have to be tI ascertaining the capital gain unde purposes of section 14(a)(xvi).
The sale value has to be apportioned, on an accep building. The date of acquisition of the comm certificate of conformity. The period of owners date of purchase of the land and the date of cert to the date of sale of the land and commercial b
Section 15 (c) - Profession or Vocation
A person takes up an assignmentabroad to write' scu person is in the category of an author. The exempt, if other conditions presented by the sec
Section 15 (cc) - Construction project.
The exemption provided in section 15 (cc) relate exercising or carrying out a profession or voca profits and income derived from the business construction project.
Section 15 (ccc) - Professional fees & emolun
Emoluments and fees paid from External Accoul Section 15 (ccc).
Section 15 (ccc) - Professional feeds & emolu
Where a professional firm receives fees and em Sri Lanka and also in local currency from clientsi in the production of income, as is attributable tol receipts.
Section 15 (ccc) - Professional fees & emolun
Section 15 (ccc) does not apply to the profits ear principals, of workers for overseas employment
Section 15 (ccc) Professional fees and emolun
Section 15 (ccc) caters to a situation offoreign exc outflows.
185

of Section 14 (a) (xvi) has to be considered nd the commercial buildings. The land and the eated as separate properties' for purposes of rsection 7(1) and the period of ownership for
table basis, as between the land and the commercial ercial; building may be taken as the date of the hip for purposes of section 14 (a) (xvi) will be the ificate of conformity for the commercial building uilding thereon.
textbooks' It is accepted that 'writing' is a vocation. emoluments (i.e.fees) earned by such persons are :tion are satisfied.
’s to services rendered in the course of carrying on. tion or a construction project. It does not apply to of hiring machines and vehicles for an overseas
1ents
nts do not fall within the ambit of the provisions of
ments
oluments in foreign currency from clients outside nSri Lanka, only such part of the expenses incurred pcal currency receipts can be charged against those
lentS
ned on recruitment, on behalf of foreign exchange
ments
hangeinflows andnotasavingofforeign exchange

Page 196
24.
25.
26.
27.
28.
29.
Section 15 (ccc) Professional fees and em
Exemption in terms of Section 15 (ccc) will fees in foreign currency. Where the remittan will not apply.
Section 15 (0) - Sales of gems and jewelle
Payments received for sales of gems and jewe as payments made in foreign currency. (T
Exchange.)
Section 15 (0) - Gems and Jewellery Exhil
The profits and income from sales made info be exempt from income tax.
Section 17 F - Exempt profits attributable
The expression profits and income' in the co means profits adjusted for income tax purpo
Section 17F - Exempt profits attributable
The word 'incurred' in the context of Section
Where an undertaking
(i) in the case of import of productive eq
purpose, or
(ii) in the case of local purchase of produc
firm commitment for such purchase.
within a period of 12 months from the releva 'incurred within a period of twelve months frc value of the letter of credit or cost of purcha
Section 20 - Exemption of Export Profits
The treatment of Export Duty Rebate an Development Board for calculating exempt
l. The export duty rebate will not form p
2. (a) The export expansion grant w 'total turnover up to year of as

luments
be available only where there, is a direct remittance of ce is made through a local intermediary the exemption
y in foreign currency
llery through international creditcards are to be treated his is based on reuling given by the Controller of
bitions
reign currency at gems and Jewellery Exhibitions will
to expansion of industry
ntext of profits and income attributable to expansion'
S6:S.
to expansion of industry
17F (2) (a) should be interpreted as follows:
uipment, opens an irrevocable letter of credit for the
tive equipment, purchases such equipment or makes a
nt date, then such undertaking will be deemed to have om the relevant date the expenditure represented by the se, as the case may be.
the Export Expansion Grant paid by the Export profits is as follows:
art of the exempt turnover for any year.
ill be treated as part of the 'export turnover as well as sessment 1982/83.
86

Page 197
30.
31.
32.
33.
34.
(b) From 1983/84 onwards, the exp turnover" and 'total turnover". (TI
Section 21 - Exempt profits from construct
The question relates to whether the liability to arises on the date an agreement for sale is drav prospective purchases (after having obtained date of attestation of the deed of transfer.
If the 'goods' (i.e. the house) are in a deliverab agreed price, business in transacted within the of sale is executed. The time of entering into ti for purposes of income tax (and also turnovel
Section 23 - Deductible expenses
Stamp duty paid on the execution of a legal do in obtaining a loan that is required as working
Section 23 - Deductibility of interest portio
Lease rental should be considered in its totali identifiable, is included in the lease rental d compartmentalized into its different elements
Section 23- Deductibility of start-up expe
Certain start-up expenses which are incurred Lanka will be treated as referable to the operati as a deduction. These expenses are :
(a) expenses of hiring staffin advance of op which would take place outside Sri Lan
(b) administrative overheads of maintaining
being prepared for the opening.
(c) transfer expenses of any staff assigned
Section 23 - Deductible Expenses
The contributions madebythe desiccated cocor by the Coconut Development Authority are no of income.
8

ort expansion grant will not form part or both 'export his is based on an appeal determination).
ion and sale of houses
income tax from the construction and sale of houses wn up, when a house is ready for occupation, with the in initial lump sum payment or an advance) or on the
le state when the agreement to sell is drawn up on an meaning of Section 2 (2) of the Act when a contract he agreement to sell will be treated as the time of sale
tax.)
cument with a bank on the hypothetication of stocks , capital of a business is an allowable deduction.
n of lease rentals
ty. The fact that an interest element, which may be oes not necessarily mean that this item should be , each entitled to separate tax treatment.
1SCS
prior to the actual commencement of business in Sri
ons after the commencement ofbusiness and allowed
ening of the branch for purposes of training some of Kd.
, a temporary office while the branch premises are
o the Branch prior to the opening.
utmillersto the Mill DevelopmentFund administered toutgoings and expenses incurred in the production

Page 198
35.
36.
37.
38.
39.
The costs of repairs to the mills met from draw profits and income.
(At the same time, the receipts from the fun
Section 23 (i) (1) - Contributions to Provia
The contributions made by an employer du approval of the Fund, provided such contribi of the employees, stipulated by the Commissi and income of such employer for that period
Section 23 (i) (j) - Contribution to Provide
If the minimum contribution of the employer by the Commissioner General, the minimum r
Section 23 (1) (eee) (iii) - Capital allowanc
A company carrying on the business of lettin claim capital allowances on a building acquire for commercial purposes cannot be consider Section 23 (7) (e) of the act is eligible for ca
Section 23 (1) (k) - Turnover Tax as a ded
The broad rule regarding deduction of expen: production" of income. Any expense to be d 23 (1) which then goes on to give certain ty turnover taxpayable and so on. Secondly, inc 23, should be allowed if specifically excludi
The words "incurred by such person" has tw liability has arisen to that person in respect of money in respect of that expense must be act example, the Co-operative Department pays operatives do not 'incur any expense by wa provisions of section 23 (i) (k), the co-operati taX.
Section 23 (1) (k) - Turnover Tax as a de
Additional turnover tax pertaining to an yea:
profits and income of a subsequent year of a

ings from the Fund are fully deductible inascertaining
are not income' in the hands of the miller.)
lent or Pension Fund .
ring any period commencing on or after the date of utions fall within the percentage limits of the salaries oner General, are deductible inascertaining the profits
.
ent and Pension Fund
under the E.P.F. Actis more than the limit prescribed equired to be contributed under the law will be allowed.
CCS
g premises for commercial purposes is not entitled to :d. A building acquired in abusiness of letting premises ed as a plant'. Only a 'qualified building' as defined in pital allowance.
luctible expenses
ses is that they must be "incurred by such person in the eductible must first qualify under this rule in Section pes of such expenses specifically to be allowed, like ine of the expenses, even if they qualify under section ed as under section 24.
to connotations. On the one hand. It means that legal that expense. On the other hand, it also means that the ally expended by 'such person'. Therefore, where, for the turnover tax on behalf of the co-operatives, the coy of turnover tax and therefore, not withstanding the vesare notentitled toa deductionin respectofturnover
luctible expense
of assessment cannot be deducted in ascertaining the ssessment. Section 23 (l) (k) is specific in providing
88

Page 199
40.
4.
42.
43.
44.
45.
that what is deductible on this account is thatv pay "for any period for which profits and inc
Section 23 (7) (f) - Capital Allowances
Where, upon conversion of any partnership, in is transferred, after March 31, 1987, to that c. such asset is equal to the cost of acquisition allowance for depreciation granted to the pa computing the depreciation allowance for t applicable to the partnership) should be appliec at time of transfer.
Section 24(1)(c) - Foreign Travel Expendi
Expenditure on foreign travel incurred by tra deduction only it could be related to "the provi The relationship should be direct if the expen
Section 24 (1) d - Entertainment Expenses
Following expenses incurred by export or section 24 (1) d:
(a) Board and lodging expenses on foreign
(b) Expenditure incurred in arranging spec buyers or in entertaining foreign buyers
Section 24(1)(f) - Advertising Expenditur.
Expenditure charged in advertising staff vacan stock - taking etc., will not be subject to the d
Section 24(1) (h) - Capital Expenditure
Stamp duty payable on a lease agreement cons is not an allowable deduction.
Section 24(1) (pp) - (re - lettered as) (q) by
Where any car orjeep is used in the business (
cash and/or uniforms and books. any rental limitation prescribed in Section 24 (l) (q), de
18

which is attributable an amounta taxpayer is liable to Ome are being ascertained"
to anon quoted company, any assetofthat partnership ompany, the cost of acquisition by such company of by the partnership of that asset reduced by the total rtnership in respect of that asset, In other words, in he company, the rate of depreciation (i.e. the rate lon the written down value of assets of the partnership
iture
vel agents and tour operators would be allowed as a
sion of any service for payment inforeign currency". se is to be tax deductible.
iented companies are disallowed in terms of
buyers.
ial functions to welcome or bid farewell to foreign
cies and in connection with closure of share registers, isallowance of 25%.
titutes a capital payment for acquisition of a right and
Act No. 22 of 199() - Lease Rentals
of providing security services solely for transporting baid in respect of such car orjeep is, subject to the ductible in ascertaining profits and income.

Page 200
46.
47.
48.
49.
50.
Section 29 (2) (a) (vi) - Annuity
Deductions under Section 29 (2) will be perm of Court by way of payment of alimony or m
l. the payment of a lump sum after the O
ii. the paymentofany furtherlump sums (t
of the marriage.
Section 30 (2) - Taxation of Provident and
Investment income of a provident fund inclu
1. Interest derived from
- fixed deposits in banks and financial - government securities. - loans advanced to members of the Fu
2. Dividends (other than exempt dividenc
3. Rental income from
- part of office premises rented out - other premises.
4. Capital gains arising on disposal of
- shares
- other assets.
Sections 30 (2) Taxation of Provident and
No deduction in respect of management expel of a provident or pension fund, derived from
Section 31 (2) (b) v - Qualifying Payments
The 'wild Life Preservation Fund' established there under is a 'fund established by the Gove of the Act.
Section 31 (2) (gg) - Qualifying Payments.
Where a person purchases a house in excess
not qualify for relief. The cost of the house inc identified in the deed of purchase.
19

itted only inrespect of an annuity paid under an order laintenance and do not include:
rder Nisi is made absolute; and
obe deposited in the Bank) in the names of the children
Pension Funds
des –
institutions.
nd.
Ls)
Pension Funds
lses is allowable in computing the investment income investments made by it.
under the Fauna. & Flora Act and Regulations made :rnment' within the meaning of Section 31 (2) (b) (v)
Housing
of Rs. 1 m., inclusive of the cost of the land, he does ludes the cost of the land even if the latteris separately

Page 201
51.
52.
53.
54.
55.
Section 31 (2) (h), (hh) and (hhh) - Qualifyi
Query : In a joint insurance policy, who i
Answer: Any person can enter into a conti
in the person or property insured, a contract of insurance constitute
Query: If a person takes a policy on the
the premium who is entitled to th of wife's life policy.
Answer: If the husband is a party to the col life of his wife, will constitute a c of insurance, as would be had the v by the husband will not constitutea
interest on the life of the wife. Pa are in essence either loans or gift
Query : A person pays the premium on hi
Answer: The payment does not qualify for 1 does not have even the capacity insurable interest on the subject.
Section 31 (2) (1) & (11) - Qualifying Paym
The provisions of section 31 (2) (1) and (11) a houseorflatorpurchase ofahousingunitinaco is deductible.
Section 31 (2) (p) - Qualifying Payments - M
Medical expenses re-imbursed and assessed a 'qualifying payment'.
Section 31 (2) (p) - Qualifying Payments - M
Section3l (2)(p) entitlesa personto claim quali treatment in a hospital or clinic outside Sri La
Section 31 (2) (p) - Qualifying Payments - M
A'child' for purposes of Section 31 (2) (p) meal 163 of the Act.
9

ng Payments - Insurance Premia
sentitled to qualifying payment relief?
act of insurance only if he has an insurable interest Payment made by such person, who has entered into s a qualifying payment.
ife of another, subject to insurable interest, an pays 2 reliefoe.g. Where the husband pays the premium
tract of insurance, the payment made by him on the ualifying payment. Ifheis nota party to the contract wife taken out a policy of her own, the payment made qualifying payment even though he has an insurable yments made without being a party to the contract son which qualifying payment relief is not due.
s friend's life policy - who is entitled to the relief?
eliefatall in that the person who makes the payment to enter into a contract of insurance as he has no
ents - Housing for Staff
re applicable only in respect of construction of any indominium, on which no allowance for depreciation
edical Expenses
s income in the hands of an employee qualify as a
sedical Expenses
fying payment reliefon medical expenses for indoor inka.
edical Expenses
is a child under 18 years of age as defined in Section

Page 202
56.
57.
58.
59.
60.
61.
Section 32 (2) - Compensation for loss of 0
Compensation for loss of office will be taxed Schedule of the Act if
(a) the compensation paid is in terms of an
(b) the compensation paid is on the basis
ordinarily earned to the date of his norn all employees.
Section 32 (2) --Taxation of Terminal Bene:
Each of the terminal benefits - provident func office will be considered separately in order to with a uniform scheme or not. If one is an acc then the one in accordance with a uniform scl other will be taxed at the normal rates. If bot aggregate of both will be taxed at the conces:
Section 33A & 33B - Impution Credit
Imputation credit is not applicable to dividen at rates other than rates specified in the 2nd c
The Imputation Creditis, therefore, not applic: income tax at 2% of the turnover.
Section 33 (1)(b) - Dividends tax
Where a dividend is paid by a resident compan made under section 38 of the Act in respecto dividend does not form part of the assessable for tax deducted under section38 is not grante entitled to a refund of the tax so deducted.
Section 33 (1)(b) - Dividend - tax
Section 33(1)(b) is applicable where the cap paid by the L. R. C. are distributed to sharehc
The dividends received by the shareholders a
Section 38 (1) - Dividends Tax at Source
The provisions of section38(1) apply to a G. (

ffice
at the concessionary rates set out in Part 4 of the First
award made by a tribunal, or
of the remuneration that the employee would have hal retirement and this basis is adopted in the case of
fits of Employees
i balance, retiring gratuity, compensation for loss of determine whether the payments are in a accordance ordance with a uniform scheme and the other is not, heme will qualify for the concessionary rate while the h are in accordance with uniform schemes, then the sionary rate.
ds distributed by companies which are subject to tax fSchedule.
able to G.C.E. C. companies which have opted to pay
y to a non-resident company and a deduction has been f that dividend by the first mentioned company, that income of the non-resident company. Because credit d to a company. A non-resident company will not be
ital gain and interest component of the compensation olders by way of dividends.
ire taxable in their hands.
c. E. C. company which opts to pay income tax at 2%
92

Page 203
62.
63.
64.
ofthe turnover. The taxable income of the con
Section 67 (1) - Resident status of a Comp;
A company incorporated outside Sri Lankah Companies Ordinance to carry out a projectil made by a Project Manager in Sri Lanka. Hov office outside Sri Lanka its control and manage will, accordingly be treated as a non- residen
Section 67 (7) - Expatriate Employees
The provisions of Section 67 (7) will not apply employed in Sri Lanka and return to Sri Lank
Double Tax Agreements - Lease of Aircraf
Where a non-resident company, having no p by way of rentor lease of aircraft, it is the Artic rent in question. the term 'royalties' is defined industrial, commercial or scientific equipm equipment.
193

1pany is the turnover which is deemed to be its profit.
iny
as a liaison office registered in Sri Lanka under the Sri Lanka and the day to day business decisions are rever, since the policy decisions are made at the head :ment are exercised outside Sri Lanka. Such company l company for tax purposes.
to non-national individuals who had been previously a to takeup employmentundera differentemployer.
t.
emanentestablishmentin Sri Lanka, derives income le on 'Royalties' which is applicable in taxing the lease to mean "consideration for use of, or the right to use ent ............................ ". An aircraft constitutes and

Page 204
CHAP
INTROD
Business Turnover Tax was first introduced in Sril effective from list January 1964. The reason for the of Finance Mr.T.B. Ilangaratne was to recoup from of the revenue lost through the fall in imports. Turn Socialist and Capitalist countries and provide bulko 1964 are as follows:
(a) Rate of3 per cent on the turnover ofany per
any article.
(b) All other businesses the rate of tax is one hal
Exemption from turnover tax was granted in respec
(a) Turnover from the sale of the follov
(i) Agricultural Produce of Ceylor
produce of ceylon
(ii) Agricultural and Industrial Ma
(iii) Animal Foods
(iv) Arrack sold in taverns
(v) Articles manufactured in Ceyl
(vi) Bread
(vii) Books
(viii) Cigarettes
(ix) Magazines and Periodicals
(x) Newspapers
(xi) Rice (uncooked)
(xii) Safety matches
(xiii) Sugar
(xiv) Toddy sold in taverns
(xv) Wheat flour
(b) Exemption was also granted in res
(i) Any Profession (ii) Anyagricultural undertaking

TER 1
UCTION
anka by the Finance Act No. 11 of 1963 to become introduction of the tax according to the then Minister the taxation of domestic manufacturers at least a part over taxes in some form or other are in force in both the Government's revenue. The rates implemented in
son who carries on the business of a manufacturer of
fper cent of the turnover of the business.
, of the following:
wing articles in any business was exempt from the tax.
including any manufactured or processed agricultural
nchinery
on and exported
pect of the following businesses:-
94

Page 205
(iii) Any undertaking for the export (iv) The business of a banker, financ
broker (v) Any insurance business (vi) The business of carrying on an
(vii) Any other business the turnover
by the Minister of Finance
The rate of turnover tax being small the Inland Revenu
tax to the consumer but to bear it themselves.
The Government of Ceylon appointed a Taxation Com Ranasinghe. The commission in their recommendati following suggestions -
(a)
(b)
Tax Shifting - Businesses should be
Tax Base- (i) Imposition of broad-ba the exemption of certain essential ( inclusion of services in the tax base luxury and semi-luxury domestically
The suggestions of the Taxation Commission were im (Amendment) Act No. 50 of 1968. The following cha
(i) broadening of the tax base t professions and services sub
(ii) removal of the present restri by a business to 80 percent c
(iii) clarification of the law relati
prevent certain abuses;
(iv) imposition of the turnoverta same or similar nature under
(v) an amendment to provide tha which is liable to the turnove liable change of ownership
(vi) provision empowering the Co
for the purpose of the Act.
195

of any manufactured or processed article
ier, moneylender, pawnbroker, commission agentor
educational establishment
of which maybe exempted from the taxby order made
e authorities did notintend the businessmen pass this
missionin 1966underthe Chairmanship of Mr.A.G. ons with regard to Business Turnover tax made the
free to pass on the Turnover tax to customers.
Sedconsumption taxes on all commodities subject to commodities for reasons of public policy. (ii) The . (iii) Rates - The imposition of differential rates on
produced or manufactured goods.
plemented by the Government in 1968 by the Finance anges in the law were effected:-
o include the gross income receivable in respect of ject to the exemption limit of Rs. 100,000.
ction that limits the amount of turnover taxpayable )fits income;
ing to the exemption of agricultural produce so as to
x on the aggregate turnover of all businesses of the
one ownership,
it where there is a change of ownership of a business ir tax, the person who acquires such business will be nad taken place;
ommissionertoprescribe the forms that are necessary

Page 206
(vii) provision for the imposition of
in cases where the tax becom
(viii) provision requiring persons w
of credit sales,
(ix) provision for the admission of
(x) provision to invalidate an app the absence of a return unless t within the appealable period;
(xi) provision for appeals to the Su
(xii) provision for the reduction of reduced on appeal and for the
(xiii) provision empowering officer documents that have been seiz any documents maybe found;t and make a record of cash fou
(xiv) clarification of the existing se
(xv) provision to redefine "authoris definition contained in the Inla
In 1969 by Finance (Amendment) Act. No. 35 o and non-manufacturing businesses was brought
In 1971 by Finance (Amendment) Act No. 55 of extended. Anyperson who hadatotalturnoverinc of Rs. 18,750/-for any quarterinayear of assessr for the four quarters was less than Rs. 75,000, pr With effect from 1.10, 1971 the current year bas. tax, a business been liable for tax on its turnover of its turnover in the preceding accounting year.
In 1973 a more comprehensive definition of the by the Finance (Amendment) Law No. 7 of 1973. I Committee the numberofrate bands was reduced, rationalized. These changes came into effect on 2 rate bands-a concessionary rate ofl per cent, a s of 15, 25 and 35 per cent.
96

the normal penalties applicable to the turnover tax 2s payable on additional assessments;
ho are liable to the tax to issue vouchers in respect
late appeals which is not possible now.
eal againstan assessment which has been made in he returnissent together with the petition of appeal
preme Court and to the Privy Council;
penalties on a proportionate basis where the tax is repayment of penalties paid in excess;
softhe Inland Revenue Department to examine any zed, to open and examine drawers and safes where otake an inventory of the articlesfound and to count ind on the premises;
2recy provisions;
ed representative" so as to bring titlin line with the and Revenue Act.
f 1969 the exemption limit for both manufacturing
down from Rs. 100,000 to Rs. 75,000
1971 the coverage of the turnover tax was further :luding the turnoverfrom excepted articlesih excess ment was made liable to the tax. Where the turnover ovision was made to refund the turnover tax paid. is of assessment was adopted for business turnover for the year of assessment itself and not on the basis
term 'turnover" was brought into the Statute book
Further on the recommendations made by an Official and the commodity groupings in each rate band were .11.1973. Commodities where to fall into five main standard rate of 5 percent and three enhanced rates

Page 207
In 1981, the Business Turnover Tax introduced b Turnover tax Act. No. 69 of 1981. By this Act turn an imported item is used in the manufacture ofgo paid on the imported item will be deducted fron Similarly, where a locally manufactured compon turnover taxpaid on the component will be deduct The tax levied on the manufacturer will be on the an element of VAT into manufacturing business
197

y Finance Act No. 11 of 1963 was replaced by the overtax was imposed at the pointofimport. Where ods or commodities in Sri Lanka, the Turnover tax n the turnover tax payable by the manufacturer. entis used in the manufacture of another item, the ed from the taxpayable by the final manufacturer. value added. The Act for the first time introduced
CS.

Page 208
CHAPTI
Legislation
Turnover Tax was introduced by the Turnove November, 1981. This Act has been amended
(i)
(ii)
(iii)
(iv)
° (v)
(vi)
(vii)
(viii)
(ix)
(x)
Turnover Tax (Amendment) Act Nc
Turnover Tax (Amendment) Act No
Turnover Tax (Amendment) Act N
Turnover Tax (Amendment) Act No
Turnover Tax (Amendment) Act No
Turnover Tax (Amendment) Act Ni
Turnover Tax (Amendment) Act No
Turnover Tax (Amendment) Act No
Turnover Tax (Amendment) Act N
Turnover Tax (Amendment) Act No
The Department of Inland Revenue has p Amendments mentioned above except the turn are advised to refer to this Consolidated Act.
The Turnover Tax Act. No. 69 of 1981 has ves in respect of:-
(a)
(b)
(c)
(d)
Exemption of any business or spec - Section 4.
Fix the rates of tax payable by any b
Declare any article as an exceptec turnover tax is payable - Section 7.
Deductions to be made from paymer Minister - Section 50.
19

ER 2
rTax Act No. 69 of 1981 and is effective from 13th by the following Acts :-
. 39 of 1983 certified on 7th October, 1983.
. 47 of 1984 certified on 28th December, 1984.
o. 54 of 1985 certified on 31st December, 1985
.9 of 1987 certified on 6th March, 1987.
. 6 of 1988 certified on 24th March, 1988.
p. 6 of 1989 certified on 11th May, 1989
. 43 of 1990 certified on 29th November, 1990.
. 13 of 1991 certified on 15th March, 1991.
o. 31 of 1992 of certified on 27th May, 1992
. 27 of 1993 certified on 16th July, 1993.
Lublished a consolidated Act incorporating all the over Tax (Amendment) Act No. 27 of 1993. Readers
ted powers in the Minister of Finance to make orders
ified business from the levy of the Turnover Tax
usiness - Section 8.
article and in respect of such excepted article no
its in pursuance of contracts at rates specified by the

Page 209
Gazette Orders under Section 4 & 7 ap
. 75/20 of
2. 781/8 of
3. 784/15 of
4. 792/5 of
5. 804/7 of
29-1-1993
26-8-1993
15-9-1993
10-11-1993
3-1-1994

blicable after 29th January 1993.
99

Page 210
CHAP
MPOSITION OF
Turnover Taxis charged for the period from 13th N quarter commencing from 1st January 1982 from ev Business is defined in Section 2 and 59 of the Act
(a) Trade
(b) Profession
(c) Vocation (d) Agricultural undertaking (e) Racing of horses (f) Letting of commercial premises by a co (g) Business of a manufacturer (h) Business of taking commissions offees (i) Business of an independent contractor (i) Every adventure or concern in the natu (k) Services rendered outside Sri Lanka for
The definition of"business" in Section 59 is inclus
does not limit the meaning of the term. The tren enlargement rather than restriction of the connotat T.C. 250 at 259). The word "business" is one of wi in a broad rather than in a restricted sense (Mazag case, it was held that the word "business" is one of which occupies attention and labour of a person for is an occupation ora duty requiring attention as di sense of an occupation continuously carried on f Secretary of State 1 I.T.C. 363).
For the purpose of turnover tax, whether a partic carrying on of a business is a question of fact to bec
of each case.
The term quarter is defined in S. 59 to mean the p lst April, 1st July or 1st October of any year.
20

TER 3
TURNOVERTAX
ovember 1981 to 31st December 1981 and for every 'ery person who carries on any business in Sri Lanka. to include the following:
mpany
for any transactions or services rendered
re of trade
which payments is made from Sri Lanka
ive and not exhaustive; it has an extending force and d of judicial decisions has been in the direction of ion of trade and business (Smith Marry vs. Cordy 28 de import and in fiscal statutes, it must be construed gaon Dock Ltd. vs. C.I.T. 34 I.T.R. 368). In another large and indefinite import and connotes something the purpose of profit. It means almost anything which stinguished from sport or pleasure and is used in the or purpose of profit. (Rogers Pyatt Shellac Co. vs.
ular activity carried on by a person constitutes the letermined, by taking into account the circumstances
eriod of three months commencing on 1st January,

Page 211
The tax is payable by a person in respect of any bu
(a) Turnover for any quarter is not less than
(b) Where a person commences or ceases to
arise if the turnover exceeds that proportic
ratio as the number of days during which
The Act in, S.3 (2) has made provision that a new ov business prior to the occurrence of the change of ov
201

siness in the following circumstances :-
Rs. 25,000; and
carry on a business during any quarter, liability will on of Rs.25,000 which bears to Rs.25,000 the same
the business is carried on bears to ninety.
wner of a business shall pay the tax in respect of the wnership.

Page 212
CHAP
TURNOVERTAX PAYABLE
The thirteenth amendment to the constituti provides for the revenue from the followin
(a)
(b)
(c)
(d)
(e)
(f)
Turnover tax payable in respect of ci
Stamp duty chargeable in respect of
Excise Revenue
Lotteries tax
Motor vehicle fees including lincenc
Court fines in respect of offences un
Legislation :
Each Provincial Council set up in Sri Lanka and stamp duty. Some of the statutes passe
a)
b)
c)
d)
e)
f)
g)
Finance Statute of the Western Provi
Finance Statute No. 13 of 1990 - Prov
Finance statute No. 8 of 1990 - Provi
Finance Statute No. 7 of 1990 - Prov
Finance Statue No.6 of 1990 - Provir
Fiance Statute No.8 of 1990 - Provin
Finance Statute. No. of 1990 - Provii
Turnover tax:
The following aspects of the turnover tax noted.
a)
Turnover Taxis payable only in resp. a commodity. Manufacturer is exclud

TER 4
TO PROVINCIAL COUNCILS.
on of the Democratic Socialist Republic of Sri Lanka g are collectible by the Provincial Councils.
rtain transactions.
certain instruments and documents.
e fees
der statutes passed by a Provincial council.
have passed Finance Statutes to recoverturnover tax dare given below:-
nce No. 6 of 1990.
incial Council of the North Central Province.
incial Council of the North Western Province.
incial Council of Southern Province.
ncial Council of the Sabaragamuwa Province.
cial Council of the Uva Province.
ncial Council of the Central Province.
imposed by the Western Provincial Council may be
ect of the business of selling by wholesale or retail of led from the payment of tax to the Provincial Council.
O2

Page 213
b)
d)
e)
f)
Manufacturers have to pay turnover appropriate rate.
There is no exemption limit for the pay
A branch of any business is liable to pa
Gazette No. 637/8 of 20th November 19 finance statute relates to the following
(i) Exempted businesses (ii) Excepted articles (iii) Rates of tax
Payment to be made at any branch oft
Penalties are payable if payments are n
The definition of turnover contained in all t "Turnover' in Turnover Tax ActNo. 69 of '81. from transactions entered into in respect of a received or receivable in respect of the sale business. The bad debts incurred in the busin
The Financial statutes of the several Provinc:
(a) (b) (c) (d)
Assessments
Appeals Penalties for non-payment and incorrec Refunds
203

Lax to the Department of Inland Revenue at the
ment of turnover tax under the regulation.
ly the tax as a separate business.
90 issued interms of Section 5(1), 7( 1) and 8 of the
he People's Bank in the Western Province.
ot made on the due dates.
he Finance Statutes is similar to the definition of Turnover is the total amount received or receivable business. Turnover shall not include any amount of capital assets in ascertaining the turnover of a
ess shall be deducted.
ial Councils also provide for the following :-
it returns.

Page 214
CHA
WHATS
The term "turnover" has been defined is Section 5 receivable from transactions entered into in respect on that business. In this definition the words "recei a trader sells articles on credit and the money is not was raised whether"turnover" includes the taxpaya question is answered in the affirmative. In laws deal States of America and England the price paid by a c inclusion is stated to be that the dealer who real Government but keeps it with him and turnsit overin for the time being a part of the circulating capital
The Act has specifically provided the method of con these are :-
1. Financier, Money Lender or Pawnbroke
In the case of these businesses turnoveri loans and any other sums received as fee
2. Educational Establishment or School
In the case of these businesses turnoverist on of the educational establishment or sc
3. Business of Insurance
In the case of a person carrying on the bus premia received or receivable in respec following classes of insurance :-
(a) Life Insurance, and
(b) Insurance against damage or des terrorism and paid into the Gove and Terrorism.
4. Importer of Articles manufactured outsic
(a) On turnoveris defined in these cas
(ascertained for the purpose of cu increased by 10%.
204

PTER 5
TURNOVER
(l) of the Act to mean the total amount received or of that business or for services performed in carrying ved or receivable"are used to cover the cases where received within the particular quarter. The question ble and recovered by a trader from the customer. This ing with sales tax and turnover tax both in the United ustomer includes the tax as well. The reason for such ise the tax does not hand it over forthwith to the his business before heparts with it. The tax becomes of the business.
nputing turnover in respect of certain businesses and
s defined to be the interest received or receivable on is or other charges in respect of such loans.
he total amountreceived or receivable in the carrying hool.
iness of insurance, turnover is defined to be the total it of insurance excluding premia in respect of the
struction by strike, riot, civil commotion or acts of rnment Fund for Strike, Riot and Civil Commotion
de Sri Lanka.
ses to mean the aggregate of the value of such articles Istoms duty) and the amount of the customs duty paid

Page 215
(b) Turnoverin the case where sucharti
in respect of the sale.
Sale by one manufacturers to another manu
Where one manufacturer of an article sells a of manufacturing another article, turnover i mean the total amount received or receivabl such transaction.
Banks
Turnover in the case of a bank is defined it
Receipts of the bank by wayoforonaccount( charges, brokerage and any other income.
The receipts attributable to the following trar banks :-
(a) The operation of the foreign current
(b) Any transaction which such bank ent
bank.
Person rendering services
Outside Sri Lanka where a person renders ser services are paid from Sri Lanka. he is liabl defined to the amount received or receivable
Sale of Capital Asset
The Act in Section 5(2) excludes from the receivable by a business from the sale of ca,
205

cles are sold is the amount received or receivable
facturer:
n article to another manufacturer for the purpose
the case of the first manufacturer is defined to e before the addition of the turnover tax due on
mean the following :-
of interest, discount, dividends, exchange service
sactions are howeverexcluded from turnover of
cy banking unit (FCBU) of such bank; and
ers into on or after 1st April 1989 with any other
vices outside SriLankabut the payment for such e to the turnover tax. In these cases turnover is 2 from Sri Lanka in respect of such services.
definition of turnover the amounts received or pital assets.

Page 216
CHAP
EXEMPTIONS AND E
Exemptions.
The Turnover Tax Act in Section 4 has
exemptions from the levy of turnover tax opinion of the Minister is essential for exemptions currently inforce is containedi No. 781/8 of 26th August 1993 and 792/1
1.
10.
12.
13.
14. .
Any business for the manufacture c poonac, rubber or tea,
Anybusiness forthecultivation oft
Any body of persons resident in building savings or thrift society or or fund has been reduced or remit subject to tax under the Inland Re
Any business for the export of any
The business of carrying on an ed from State Funds are paid or to wh not paid;
The business of a shipowner or cha Republic of China or by any ag agreemententered into by that Gov Lanka,
The Lady Lochore Loan Fund,
The Central Bank of Sri Lanka;
The National Savings Bank,
The State Mortgage and Investmel
The Loan Board established under
The Ceylon Institute of Scientific;
The Incorporated council of Legal
20

TER 6
XCEPTED ARTICLES
given powers to the Minister of Finance to grant to any business or specified business which in the the economic progress of Sri Lanka. The list of n Gazette No. 751/20 of 29th January, 1993, Gazette 5 of 10th November 1993 and these are:-
of copra, desiccated coconut, coconut fibre, coconut
ea, rubber, coconut, paddy, chillie, tobaccoorbetel;
Sri Lanka carrying on or operating a provident, fund where the income taxpayable by such society ited under sub-section 4 of Section 32 or which is venue Act No. 28 of 1979;
manufactured or processed article;
ucational establishment or school to which grants ich such grants were earlier paid but at present are
rterer carried on by the Government of the People's 2ncy of that Government and referred to in any ernment and the Government of the Republic of Sri
nt Bank;
the Loan Board Ordinance;
and Industrial Research;
Education,
6

Page 217
15.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
The Greater Colombo Economic Cor
Any Government Department except
Any Local Authority or District Dev
National Development Lottery;
Gam Udawa Sevana Lottery Fund;
Mahapola Lottery and Higher Educat
Wasana Lottery of the National Yout
Lotteries conducted by the National I
National Housing Development Auth
Housing Development Finance Corpc
Department of National Housing;
The business carried on by the Sri La Transport Law, No. 19 of 1978, of sell up under the said Law:
The business of a Regional Rural Dev
The business of manufacturing cem cement for sale;
Fees received or receivable by the Va to Government Institutions, Statutory
The business of manufacturing in Sri
The business of producing cinematog
The business of the Central Cultural
Any business of operating a passenge transport of tourists or for excursion t
Any business specified in Part VI of exclusively for the manufacture of an any quarter does not exceed Rs. 200,0
207

nmission;
where such Department carries on a business;
lopment Council;
ion Trust Fund;
h Service Council;
otteries Board;
ority,
pration;
nka Central Transport Board established under ing any article to a Regional Transport Boardset
velopment Bank;
2nt, importing cement and adapting imported
luation Department for Valuation reports made Boards and State Corporations;
Lanka machinery for the manufacture of coir;
raph films;
Fund;
transport service, other than a business for the ours or for taxi service;
he Order under Section 7 using manual labour 7 article where the turnover of such business for )00;

Page 218
56.
37.
38.
39.
40.
lhe business of any person not reside No. 28 of 1979 or any partnership re. Lanka which provides in Sri Lanka construction management services a to a company with which an agreemer of Sri Lanka under Section 17 of the 1978 and which has, in accordance v Lanka not less than US$50 million c cost of establishing such enterprise a
The business of -
(a) Any person not resident withint
1979; or
(b) Any partnership which is regist
for the provision, in Sri Lanka, of under a contract entered into wit which is exempt from turnover
The business of manufacturing hand
Any business for the cultivation orn
The business of manufacturing yarn
208

nt within the meaning of the Inland Revenue Act, gistered outside Sri Lanka which provides in Sri architectural, engineering, quantity surveying or nd such other services as may be ancillary thereto, thas been entered into by the Board of Investment Board of Investment of Sri Lanka Law No.4 of with such agreement invested or will invest in Sri brits equivalent in any other currency to meet the ind its working capita,
he meaning of the Inland revenue Act, No. 28 of
ered outside Sri Lanka;
fany service referred to in item (36) of this Order, h any other person or partnership the business of tax under item (36) of this Order,
loom textile fabrics,
hanufacture of agricultural seed.
of textile material

Page 219
CHA
MANUFA
Who is a manufacturer ?
The term 'manufacturer' is defined in Section 5
(a)
(b)
(c)
(d)
(e)
(f)
Any person who makes an article.
Any person who assembles or joins any a
Any person who adapts for sale any artic:
Any person who packages, bottles, puts in labels or in any other way whatsoever pre
Any person who purchases or receives fo with the Greater Colombo Economic C
G.C.E.C. Law No. 4 of 1978 any article n
Any person who imports or brings into Sri
The term 'article' is defined to include any go produce.
Adaptation for sale
This phrase has come up for interpretation in the Act 1928 in several cases. Some of these cases ar this phrase in our Act,
(i)
Davis Cohen and Sons Ltd. v. Hall 1952
The ratepayers occupied premises in w government surplus stores, the cases bein and arranged, but no other work was donetc acts the premises was a factory as contem 190l. By this section, Factory meant "..... to ....... the adapting for sale of any article
Sir Raymond Evershed M.R. who deliver say that any dealing in goods so that they m of the character of the goods at all, amc considered the limits of the principle.
209

PTER 7
CTURERS
9 of the Act to mean,
ticle whether by chemical processes or otherwise.
le.
to boxes, cuts into pieces, cleans, polishes, wraps, pares for sale any article except in a retail store.
r sale from any enterprise which has an agreement ommission (G.C.E.C.) under Section 17 of the nanufactured in Sri Lanka by that enterprise.
Lanka any article manufactured outside Sri Lanka.
ods, material or any agricultural or horticultural
2 United Kingdom under the Rating and Valuation e dealt with below and may be guide in interpreting
1 A.E.R. 157
hich they stored twenty five thousand cases of g there opened and their contents being identified them. The question was whether by reason of these plate by Section 149(i)(c)(iii) of the Factory Act, ... manual labour is exercised..... in or incidental
2d the judgement said:- "I think it is impossible to light be more suitably sold, involving no alteration unted to an adaptation for sale." This case also

Page 220
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Hoare v. Truman, Hanbury, Buxton and C
Beer was aerated and bottled. Held adaptat of Law v. Graham (1901) K.B. 327. Lord, judgement in both these cases.
Revenue Officer, Cardiff v. Cardiff, Asse 1 K.B. 47
In this case it was held that the composing making of an article and the adapting for sa of the Factory and Workshop Act. 190l.
Kinder v. The Mayor of the Metropolitan
Waste paper was compressed into bales a
Trove v. Lloyd's British Testing Co. Ltd.
Lloyd's was a standards bureau which tes goods sent to it for testing. Held this was n sellers. They tested for the benefit of the s
Wiltshire CountyValuation Committee v. I 937
Pre, ises belonging to the respondents we it might be freed from impurities and coole Held by Lord Goddard C.J. that the process an article for sale within the Factory and V
Nib lett Ltd. v. Confectioners Materials C
Removal of a name with a view to enablin
sold under that name would not constitutear to change the nature of the physical thing.
(vii) Fullers Ltd. V. Squire (1901) 2 K.B. 209.
(ix)
Sweets and bons were packed into wicke boxes decorated with layers of coloured p.
Commissioner of Inland Revenue v. Mess
Messrs. Reckitt and Colman of Ceylon distributor of pharmaceuticals, toilet requi ultra marine blue in paper packets containir
210

2o. (1902) 86 LT 417
ion for sale. This case distinguished the earlier case Alverstone was the same judge who delivered the
ssment Committee and Western Mail Ltd. (1931)
, printing and publishing of a newspaper was the ale of an article within the meaning of Section 149
Borough of Camberwell (1944) 2 A.E.R. 315
nd sold. Held this was adapting for sale.
(1931) A.C. 450
ted and certified the qualify and specifications of ot an adaptation for sale because they were never ellers.
london Co-operative Society Ltd. (1950) l A.E.R.
re used by them to collect milk and treat it so that :dbefore being sent to London for pasteurisation. of cleaning and cooling the milk was not adapting Workshops Act (1901).
o. Ltd. (1921) A.E.R. 459
g the sale of an article which by law could not be adaptation for sale because nothing has been done
r baskets which were ornamental with ribbons or aper. Held adaptation for sale.
's. Reckitt and Colman of Ceyon Ltd. (S.C. 1-74).
Ltd. carries on business as a manufacturer and sites and household goods. The Company imports g58 pounds under the name "Sea Gull Blue." This

Page 221
ultramarine blue is then packeted by met smallerby mechanical and manual process sizes, placed in paper cartons and marked does not undergo any change in the proc physical properties of "Sea Gull Blue" a imported under the name "Sea Gull Blue" an differ only in name but are one and the sal
The Commissioner of Inland Revenue made It was contended for the Commissioner that under the third limb of Section liS9 of th manufacturer as a person who 'adapts fors adaptation for sale would not include a procc which was already saleable was packed ins then sold. The Supreme Court however dic sale.'(The definition of the term manufactu tax Act No. 69 of 1981 and the third limb { are same).
Consequent to this decision by the Supreme of the term manufacturer was extended to boxes, cuts into pieces, cleans, polishes, wra for sale any article otherwise than in a re exclusively and directly to the consumer. T Turnover tax Act in subsection (d) of the t
An importer who imports in bulk and pac wholesalers would beliable as a manufactur store he would not be liable as a manufact
Obligations of Manufacturers
Section 46 requires every manufacturer liable Commissioner-General of Inland Revenue and however is required in the case of persons who bri than in the course of a business.
The section further requires every person registere transaction entered into by him with another regis
(a) Hid name, address and registration numbel
Name, address and registration number, if
Date.
211

hanical and manual process by the Company in y the Companyin smaller packet of three different Robin Blue" and sold wholesale. The ultramarine 'ss of packeting. The chemical composition and e not altered in the process. The Blue which is d the Blue that is sold under the name "Robin Blue"
C.
assessments at the rate applicable to manufacturers. the Company is liable to pay taxas a manufacturer e Finance Act No. l l of 1963 which defines ale any article'. The Supreme Court held that the 'ss where for convenience of distribution an article maller and more convenient or handy packets and not give a definition of the term 'adaptation for re in sub-section (c) of Section 59 of the Turnover f Section 159 of the Finance act No. 11 of 1963
Court, by Finance act No.3 of 1978 the definition include a person who packages, bottles, puts into ps, labels or in any other way whatsoever prepares :tain store for the purpose of sale in such store he same definition is included in section 59 of the erm 'manufacturer
ckets into small packages and distributes tot he 2r. If he sells to the consumer direct through a retail ITՇT.
: to turnover tax to register himself with the obtain a registration number. No registration ngs articles manufactured outside Sri Lanka other
d with the Commissioner-General to recordevery tered manufacturer on a voucher which sets out:-
any, of the buyer.

Page 222
(d) Nature of transaction.
(e) Quantum of articles sold and sale pric
(f) Turnover tax attributable only at the p
(g) Turnover tax paid by him to the Princ without these being used in manufactu
This would be in respect of raw-materials, cor
Compliance with the fore-going would ena Turnover Tax paid.
The original of such voucher should be issued by the manufacturer for a period of five yea
Deduction by Registered Manufacturer S
Section 47 allows the deduction of Turnov registered manufacturer (including an impo containers, receptacles and wrappers used in sold without processing) from the taxpayable irrespective of whether the manufactured art
Example: Liability to Turnover tax of Re
(Quarter ended 31.12.88)
Purchase price before addition materials purchased from anot Turnover Tax (say) 10 per cer
Purchase price by X
Sale price of goods manufactu quarter ended 31. 12.88
Turnover Tax payable (say) 2 Turnover Tax paid X on raw I
Turnover Tax now payable by
The claim for deduction will be allowedby t by vouchers.

; before the addition of Turnover tax.
bint of sale.
ipal Collector of Customs in respect of articles sold
『C.
tainers, wrappers imported and sold to manufacturers.
ble the manufacturer/purchaser to claim credit for
to the purchaser of the goods and the duplicate retained
S.
ection 47
er tax paid by a registered manufacturer to another orter) during a quarter in respect of raw materials. his business of manufacture (that is not sold or to be by him for that quarter. The deduction can be claimed
icle was sold during that quarter or not.
gistered Manufacturer
to Turnover tax of raw
her manufacturer Rs. 100,000 t Rs. 10,000
Rs. 110.000
red by X during the
Rs. 75,000 ) per cent Rs. 15,000 naterials Rs. 10.000
Χ Rs. 5,000
he Department of Inland Revenue only if its supported
12

Page 223
Section 47 prohibits the deduction in computing at the point of import or at the point of purchase
(1) Turnovertaxpaidin respectofplar
capital assets used in a business.
(2) Turnover tax paid in respect of
production of excepted articles.
213

liability to turnover tax of turnover taxpaid either ; of the following:
it, machinery, fixtures, buildings, vehicles or other
articles used in any exempt business or in the

Page 224
CHAP
TURNOVER TA
In terms of the Order made by the Minister of any manufactured or processed article available to the manufacturer who exportstl who purchases the goods from another per
In terms of Section 49(3) of the Act an manufacturer by an exporter will be refunc
be satisfied to obtain the refund:
(a) That such article was produced or m exporter from the manufacturer or pr
(b) that the price paid by the exporter for of the business of that manufacturer
(c) that turnover tax has in fact been pai
turnover of his business.
Refund due to Exporters who are not m:
In terms of Section 49(3) of the Act any tu from a manufacturer will be refunded to thee
to obtain the refund :-
(1) A claim in writing for a refund should after the export of such articles.
(2) The articles exported should be man purchased by the exporter direct fro
(3) The price paid by the exportershould b
(4) Tax on the sale of such articles to the
(5) No rebate in respect of the Turnover' Board in respect of the articles expor
Refund duc to an Exporter who is also th
In terms of Section 49(4) of the Act the ex articles exported is entitled to claim a refun
2

TER 8
X - EXPORTERS
under Section 4 of the Act any business for the export is exempt from the turnover tax. The exemption is legoods manufactured by him and also to the exporter son who has manufactured them.
y turnover tax paid on articles purchased from a ed to the exporter. The following conditions have to
anufactured in Sri Lanka and was purchased by the
oducer of such article;
he purchase of such article forms part of the turnover or producer, and
d by that manufacturer or producer in respect of the
anufacturers.
nover tax paid on articles purchased by an exporter xporter. The following conditions have to be satisfied
be made after three months and within nine months
ufactured or produced in Sri Lanka and should be m the manufacturer/producer.
e included in the liable Turnover of the manufacturer.
exporter has in fact been paid to the Department.
Tax paid is claimable from the Export Development ed.
le Manufacturer/Producer.
porter who is also the manufacturer or producer of on the turnover tax attributable to the raw materials

Page 225
used by him in the manufacture or produc Turnover taxpaid to the Principal Collectoro receptacles and wrappers. The following co
(1)
(2)
(3)
(4)
A claim for a refund should be made ir of the export of such articles.
The price paid by the exporter for the or production of the exported article is producerfrom whom such raw materi
Turnover tax attributable to the raw ma the Department by the manufacturer/p
No rebate in respect of Turnover tax is respect of the articles exported.
Refund due to supplier of Raw Materials
In terms of Section 49(4A), introduced by turnover taxpaid by a supplier of articles to an The following conditions have to be satisfied
(i)
(ii)
(iii)
The supply is covered by a letter of cre basis against an International Letter of exchange value of the exports related t
The turnover tax has in fact been paid to materials used by such supplier in the 1
That turnover tax was paid by the sup purchaser where it is proved to the sa Revenue that it is inexpedient or impra a letter of credit (ona back to back basis will be granted if the following conditi
(a) Documentary evidence asr that exports relating to suc
(b) The receipt of payment of certified by a bank as bein
215

ion of the articles. This refund also includes the Customs on the import of raw materials, containers, hditions have to be satisfied to obtain the refund:-
writing after three months and within nine months
purchase of raw materials used in the manufacturer ncluded in the liable Turnover of the manufacturer/ ls were purchased.
terials used by the exporter has in fact been paid to roducer of the raw materials.
claimable from the Export Development Board in
to an Exporter.
Turnover Tax (Amendment) Act No. 6 of 1988, exporteris refunded by the Commissioner-General. l:-
dit opened in a bank in Sri Lanka on a back to back Crcdit for remittance to Sri Lanka of the foreign o such supply.
the Director-General of Customs in respect of raw manufacture or production of articles supplied, or
plier for the purchase of raw materials from the tisfaction of the Commissioner-General of Inland ticable to cover the supply of the raw materials by againstan International Letter of Credit) the refund ons are satisfied:-
equired by the Commissioner General to satisfy him h supply were actually made, and
in foreign exchange for the value of the exports is g remitted to Sri Lanka.

Page 226
CHAP
TURNOVERTAX
Section 50 of the Act requires every pers either as a party to or on behalf of anothe such payments turnover tax at the ratess Order 751/20 of 29th January 1993 pri “contract” is defined in Section 50 sub-sc
(l) A contract in respect of construct
(2) A contractforthe supply of goods c
(3) Any sub-contract in respect of an
(4) Any contract for the provision of
(5) Any contact for the provision of
contract of employment
(6) Any contract for the supply of cin
The tax deducted should be remitted to th making such deduction. The requirementt consideration payable on the contract exc
The prescribed rates are as follows:-
(l) Contracts or sub-contracts for cons
(2) Supply of goods and services.........
(3) Services ofanentertainer or artiste
(4) Contract for the supply of cinemat
(5) Any contract or sub-contract for l
Every person who deducts Turnover Tax arising
(1)
Remit the sum deducted to the Commissio within seven days of making such deduct
(a) The name and address of the pers
(b) The nature and total value of the c

PTER 9
K CONTRACTORS
son who makes payment in pursuance of a contract r person who is a party to a contract to deduct from pecified by the Minister by Gazette Order. Gazette escribes the rates currently applicable. The term action 4 to mean:-
ion work of whatever nature.
brservices in respect of any contract for construction.
y contract mentioned in (10 & (2) above.
services.
services as an entertainer or artiste but excluding a
ematograph films by a producer.
e Inland Revenue Department within seven days of odcduct tax undersection 50 applies only if the total ceeds Rs. 100,000.
truction.............................“. 5%
C C C LCL 0 C LLLSLS 0LSL S 0S C C C 0 C CC C C LC C C L0L C LL LC LL LLS LLL LLL 0L L L L L LSL L LSL LSL 0SL LL LL SL LL LLL LLLL LL LSL 0SL GL 0SL LLL SL LLLL 5%
SS S SS SSSSS S CL C 00L CC LSL LL L C LL CL CL CLC L CC C0L CCL C CC 5%
ograph films................................. 5%
lying terrazzo flooring................. 10%
from payments under such contracts shall:
her general of inland Revenue (Turnover tax Branch) ion together with a statement setting out
on making the payment
>Ontract
6

Page 227
(c) Name and address of the person, (C Turnover Tax File Number, if avail
(d) The amount of payment and the Ta
(2) Issue to the person from whose payment T
(a) The date and the total value of the c (b) The gross amount of the payment (c) The rate and amount of tax deducte
(d) Net amount paid
Every person who fails to deduct the Turnov be personally liable for any tax not deducte liable to prosecution under section 52 of th
3. Payment of Tax
On Turnover Exceeding Rs. 5,000,000
Where the Turnover of any business for a Turnover tax for the next quarter shall be p
(a) 1/3 of the Turnover tax payable fort of the second month of the next Qua
(b) 1/3 of the Turnover tax payable for til of the third month of the next Quart
(c) The Turnover taxpayable for the nex (a) and (b) should be paid on the 15th
27

intractor) to whom the payment was made and his able.
was deducted, a statement indicating
x was deducted, a statement indicating
ontract
er tax required orto remit the tax so deducted will d and remitted. Furthermore, he renders himself
Turnover Tax Act.
Quarter exceeds Rs. 5,000,000 aid as follows:-
he previous Quartershall be paid on the 15th day rter.
ne previous Quartershall be paid on the 15th day δI.
Quarter, after deducting the amounts paid in Para day of the month following the end of the quarter.

Page 228
CHAP"
TURNOVERTAX ON THE
General:
The turnover tax treatment with regard to the Gazette Order No. 792/15 of 10th Novi Tax Act No. 69 of 1981. This will be dea
Nature of the Business :
The business of printing has two element
(a) the manufacturing turnover, where
, and
(b) the non-manufacturing (service) t
(primarily paper) for printing.
Tax Treatment before 11.11.1993
Prior to llll. 1993, there was no need to r and service components in the turnover of rate of 5% applied irrespective of whethert or service (paper supplied by the custome of the Order under Section 7 published in
“The business of printing on paper. (including boxes, cartons, corruga
Because a single rate applied, the business
printing businesses are such that they man was given for input taxes, if the printer, as a 47 and/or Section 48 of the Turnover T. apportion to services the input taxes on a printers, particularly because such part of on the main inputs.
Tax Treatment on or after fl. 1.1993
Effective from November 11, 1993 separ relation to :
(a) manufacture, and (b) supply of service,

TER 10
BUSINESS OF PRINTING
the business of printing was changed consequent to mber, 1993 issued under Section 7 of the Turnover t with below.
the printeruses his own materials (primarily paper)
urnover where the customer supplies the materials
ecognise the distinction between the manufacturing a printing business. That is because the turnover tax here is manufacture (paper belonging to the printer) r). The relevant item in Part V (5%) of the schedule
Gazette No. 751/20 of 29.1.1993 reads:
paper articles, paperboard and paperboard articles ted boxes, cups, envelops and files file covers).'
ofprinting was treated as a whole even though many ufacture as well as supply a service. Besides, credit manufacturer, satisfied the requirements of Section ax Act. No attempt was made, in that context, to ncillary materials, such as inks and gums, used by he input tax was not substantial in relation to the tax
ate rates have been fixed on the printing turnover in
8

Page 229
The Gazette No. 792/15 of 10.11.1993 provides fo
(i)
(ii)
In part V - 5% Rate:
“The business of rendering services and paperboard articles (includingb file covers),
In Part VII - 10% date:
The business of printing on paper, p (including boxes, cartons, corrugat
From November 11, 1993, the manufactur identified and separately shown in the return while the service turnover will continue to
Tax Treatment of Service Turnover
The turnover relating to “services” will be for printing on the paper supplied by the cu
Note:
No input credits could be claimed a
An apportionment should be made such as gums and ink used by the pr
credit, if claimed, against manufact
No defence levy is payable.
Tax Treatment of Manufacturing Turnove
Where the printeruses his own materials (pa rate of 10% applies to such turnover.
Note:
Input taxes on raw materials could
Defence levy is payable on the turn
Printing on materials other than on paper
Printing on
cellophane paper
29

r the following:
; for printing on paper, paper articles, paperboard oxes, cartons, corrugated boxes, cups, envelop and
aper articles, paperboard and paperboard articles 2d boxes, envelop and file covers),
ing turnover and the service turnover need to be
l. The manufacturing turnover will be liable at lo% be liable at 5%.
that part of the turnoverfor which a charge is made
StOmer.
gainst the output tax.
with respect to the input tax on ancillary materials
inter for supply of services. This part of the input uring turnover, should be disallowed.
per) he is carrying on abusiness of manufactureThe
be claimed against the output tax
(OV6f.

Page 230
- photographic paper w materials like tin, polythene or text is not covered under the item prin
at 20% except for rendering servic liable at 20%
Printing of Books
Where the printer uses his paper and pi turnover, as books are an excepted artic cheque books, day books, cash books, dia of association, prospectus etc.
Newspapers, magazines and periodicals a Anything in the form of a pad. (e.g. lett turnover tax. A calendar with provision
Printing and Publishing of Newspapers,
The rate applicable to the business of publishing of a newspaper periodical o classified as manufacture.
Note:
Rate applicable is 20%
Input Credit could be claimed. Defence levy is payable.
Photocopying
This is not classified as printing for the r from that used in printing.
Note:
The rate applicable is 5% (rate re No input credit could be claimed ar There is no liability to defence L.
Computer Stationery
(a) The Production of computer static
business of manufacture
م/

illes
ting on paper..................... and is taxed as for printing on textiles. Similarly plate-making is
rints books, there is no turnover tax on the related le. Books include cash memo books, receipt books, ries, ledgers, annual reports, memoranda and articles
re not excepted articles. er head pads) is an item of stationery and liable to for writing is not a book.
Periodicals and Magazines
printing does not cover the editing, printing and r a magazine. The publication of a newspaper is
ason that copies are obtained by a process different
lating to services).
evy.
onery (blank, in continuous form or cut to sizes) is a
220

Page 231
Note:
Rate applicable is 20% Input credit could be claimed.
Defence levy is payable.
The following are also included in
(a) There only a commercial symb
computer printed,
(b) Where computer paper is rulec
colours.
(b) Where personalised printing is don
10% fro 1 1 1 1 1993
- Note:
Input credit could be claimed. Defence levy is payable.
(c) Where personalised printing is done the rate applicable is 50% as this is
10. Printing non Photographic Paper
(a) The business ofa photographic studi in relation to this business is treated
Note: - TT rate applicable is 20%. - Input credit could be claimed. - Defence levy is payable.
(b) The business of developing films h photographs from negatives handed
Note:
- TT rate applicable is 5%. - No credit for input tax is due.
Defence levy is not payable
22

in stationery
ol, or a letter head is printed leaving the rest to be
l, or demarcated to indicate rows, and columns in
2 using computer stationery the printer is liable at
on computer stationery supplied by the customer, a business or rendering services for printing.
o, and the processing and printing of photographic
as a manufacturing business.
anded in by customers, and obtaining copies of
over, is a business of providing services.

Page 232
11. Printing on Textiles
The business of rendering services f
Note: o No credit for input tax is due. was Defence levy is not payable

r printing on textiles is liable at 10%.
222

Page 233
CHAPT
TURNOVERTAX -
Business of a Travel Agent
The rate applicable to the business of a trav by Gazette No. 75l/20. This rate was cha However, the rate of 5% will continue to a arising prior to April 1, 1994 from contrac foreign tour operators.
Business of a Hotel Approved by the Cey
The rate applicable is 5% where the contra with foreign tour operators. The rate applic (other than for contracts entered into prior to however not apply to the business of letting
Business of Selling Air Passenger Ticket
The rate applicable is 5%. It is usual for an A who are remunerated by the Airline by way o tax on the full amount received without ded is liable on the commission.
Business of a Commission Agent
Section 59 of the Act defines a “business' to
of any transactions or services rendered..... be liable to turnover tax at 10%.
In Sri Lanka large manufacturing compani wholesale dealers and stockists. These indi the manufacturers are remunerated by way the question is whether they became commi the commission or on the total sales effected Courts and hence a final decision has not b
The present viewis that if the distributorpur credit or cash and then sells to the consume, not on the commission. The property in the distributor. In order to be treated as a comm Department is that the ownership in the goo to him but should be in the manufacturer. It
223

ER 11
SPECIAL CASES
'el agent was fixed at 5% from 29th January 1993 nged to 10% by Gazette No. 784/15 of 15/9/93. pply on turnover of the business of a travel agent ts entered into prior to list November 1994 with
lon Tourist Board
cts were entered into prior to 1st November 1994 :able on the turnover of the business of the hotel 1st November 1994) is 10%. The rate of 10% will
rooms by such hotel.
S
irline to appoint agents to sell airpassenger tickets foommission. The Airline is liable to pay turnover ucting the commission it pays the agent. The agent
include “taking of commissions or fees in respect Any person who is in receipt of commission would
les distribute their products through distributors, viduals and companies who act as distributors for of commission on the sales effected by them. But ission agents and are liable to pay turnover tax on |by them. This question has not been tested in the een reached.
chases the goods from the manufacturer either on r the distributor is liable on the total turnover and goods has passed from the manufacturer to the ission agent, the view held by the Inland Revenue ds dealt with by him (distributor) should not pass is therefore prudent on the part of a distributor to

Page 234
deal with the products on a consignment b, agent and the turnover tax will be less.
Business of an Insurance Agent
By Gazette Order 804/7...of 31st January at 5%.
Business of the National Development
The National Development Bank and the I
turnover tax up to 10th November 1993. Fr. liable to tax and the rate applicable is 2%
2.

asis in which case he will be treated as a commission
1994 the rate applicable to insurance agents is fixed
Bank and the Development Finance corporation
Development Finance corporation were exempt from om 1 lth November 1993 these two institutions were

Page 235
OHΑΡΤ
CREDITS AN
General
Chapter XIVA of the Turnover Tax Act de five sections and these are:-
(a) Section 47 - Deduction by Registe
(b) Section 48 - Deduction of Turnove
Director - General of Customs.
(c) Section 48A
and 48B - Deduction by Manufact Tax paid on Machinery and Equip
(d) Section 49 - Turnover tax paid in e
refunded.
Deduction by Registered Manufacturer
Section 47 allows the deduction of Turnov registered manufacturer (including an impo containers, receptacles and wrapper used in be sold without processing) from the tax pi be claimed irrespective of whether the manu
Example: Liability to Turnover tax of Re
Purchase price before addition to Turnove of raw materials purchased from another n
Turnover Tax (say) 10%
Purchase price by X
Sale price of goods manufactured by X du quarter ended 31.12.88
Turnover Tax payable (say) 20 percent
Turnover Tax paid by X on raw materials
Turnover tax now payable by X
22.

ER 12
D REFUNDS
als with credits and refunds. This chapter contains
ed Manufacturer.
r tax Paid to
rer of Turnover
ment.
xcess to be
2r tax paid by a registered manufacturer to another orter) during a quarter in respect of raw materials, 1 his business of manufacture (that is not sold or to ayable by him for that quarter. The deduction can ufactured article was sold during that quarter or not.
'gistered Manufacturer (Quarter ended 31.12.88)
rTax
hanufacturer Rs 100,000
Rs. 10,000
Rs. 110,000
ring the
Rs 75,000
Rs 15,000
Rs 10,000
Rs 5,000

Page 236
The claim for deduction will be allowed by t supported by vouchers.
Section 47 prohibits the deduction in computing either at the point of import or at the point of
(i) Turnover tax paid in respect of plant, I
capital assets used in the business.
(ii) In respect of quarters commencing pr. respect of any article used in any busi
(iii) Turnover Tax paid in respect of any art turnover tax in terms of section 4 of th
The proviso to section 47 in sub-section (c) all excess tax paid. The basis is as follows:-
(i) Where the deduction is in respect of tu excess of the tax over the amount payab and set offin the succeeding quarter a
Example
X is a manufacturer whose turnover for the qu rate of taxpayable is 20%. Xhas paid in the quar a sum of Rs.100,000/-
Turnover tax Payable س
Less Set off under
Section 47
Turnover Tax carried forward Mww.
This Rs. 40,000/- can be off against the Turno if it cannot be set off, then for the succeeding
(ii) Where the deduction of turnover taxpa April, 1989 then the excess of the taxov and set off against the succeeding qual the fourth quarter succeeding the quart excess it shall be refunded.
226

he Department of Inland Revenue only if it is
gliability to turnover tax of the turnovertaxpaid purchase of the following:-
machinery, fixtures, vehicle, buildings or other
ior to list April, 1969, the turnover tax paid in ness of manufacture of excepted articles.
icle used in any business which is exempt from Le Act.
lso sets out the basis of granting refunds of the
rnover tax paid prior to 31st March, 1989, any lc is not refunded. The excess is carried forward nd so on.
arter ending on 313.89 is Rs.300,000 and the ter ending 31.3.89 turnovertaxon raw materials
20% of Rs. 300,000 Rs. 60,000
RS. 100.000) Rs.. 40,000
ver Taxpayable for quarter ending 31.3.90 and quarters but cannot be refunded.
idis in respectorquarters commencing after list er the amount payable should be carried forward ters. The excess should be carried forward for er in which such excess arose and if there is any

Page 237
Example: X is a manufacturer whose turne
and the rate of tax applicable to him a sum of Rs. 200,000/- in the quan follows:-
Turnover Tax Payable For quarter ending 30.6.89
Less: Set off under Section 47 Amount carried forward Turnover Tax Payable for quarter ending 30.9.89 (say) Less Amount brought forward Excess carried forward TurnovcrTax payable for quarter ending 31.12.89 (say)
Less Amount brought forward Excess carried forward Turnover Tax Payable for quarter ending
31.3.90 (say)
Less Amount brought forward
Excess available
This amount of Rs. 80,000/- can be refunde( became available as set off.
Deduction of Turnover Tax paid to Directo
Section 48 allows the deduction of turnove Director-GeneralofCustoms during any qua in the manufacturer of articles. No deduction
(i) Turnover taxpaid in respect of plant,
capital asset used in the business.
(ii) In respect of quarters commencing p article used in any business of manu
(iii) Turnover tax paid in respect of any an turnover tax under section 4.
Vouchers for the payment of turnover tax forwarded along with the claim.
227

ver for the quarter ending 30.6.89 is Rs. 500,000 s 10%. He has paid a turnover tax on raw materials ter ending 30.6.89. The manner of set off is as
10%. Rs. 500.000 Rs... 50,000
= Rs... 200.000 = Rs. 150,000
ஃ Rs... 10,000
150.000 .RS =س= - Rs... 140,000
二 Rs. 120,000
Rs... 140,000 Rs. 120,000
= Rs.. 40,000
RS. 120.000 Rs... 80,000
i to Xas four quarters have ended after the amount
r-General of Customs:
:r tax paid by any registered manufacturer to the
terin respectofarticles used by Such manufacturer is however, available in respect of the following:-
machinery, fixture, vehicle, building orany other
rior to April 1, 1989 the turnover tax paid on any facturing excepted articles.
ticle used in any business which is exempted from
to the Director-General of Customs should be

Page 238
Where a deduction for any quarter endin payable by such manufacturer, the excess in the succeeding quarters. This is similar dealt in the last paragraph) Where the dedu 1989, the excess over the amount payable in set offin the succeeding quarter. However, the excess become available, then it shall b to the claim under section 47 (which has b
Deduction by manufacturer of turnover ta
The credits available to a manufacturer un of plant, machinery, fixtures, vehicle, buil manufacturing. (This aspect has been exp beginning from 1st October,1991 (consequ act by Amendment Act No. 31 of 1992) cr turnover tax pad either to another regist Customs in respect of machinery or equip manufacturer.
In respectofthe quarters beginning from ls the credit to be allowed is restricted to 5 pe allowed over a period offive years. The Tul reducing the period offive years to two yea equipment after the list January, 1993. (Se
Both sections 48A and 48B prohibits the c circumstances:-
(i) if such turnove, in respect of manufacturer ofe ed articleso under section 4:
(ii) unless the firs, .utioned manufac 46(2), from the second-mentionec General of Customs, in respect of case may be, and
(iii) from the turnover taxpayable in re such machinery or equipment in su
Turnover Tax paid in excess to be refund
Section 49 provides that refunds may be c if such claim is made within three years a available.

g prior to 31st March, 1989 exceeds the amount cannot be refunded but carried forward and set off to the deduction under section 47 (which has been ction is in respect of quarters ending after list April, n any particular quartershall be carried forward and if there is an excess after the fourth quarter in which e refunded to the manufacturer. This is also similar een dealt in the last paragraph).
X paid on machinery and equipment:
der sections 47 and 48 were not available in respect dings or other capital asset used in the business of lained in the last two paragraphs). But, however, ent to the amendment brought to the Turnover tax edit for turnover tax paid were made available for ered manufacturer or to the Director-General of ment used in the business of manufacturing by a
tOctober, 1991 and ending on 31st December, 1992 rcentum of the turnover tax paid is therefore to be rnover Tax Act was amended by ActNo. 27 of 1993
irs in respect of turnover taxpaid on machinery and :ction 48B).
leduction of the turnover tax paid in the following
f machinery or equipment used in any business of rin any business which is exempt from turnover tax
turer has obtained a voucher, as required by section l manufacturer, or a voucher from the Directorsuch sum so paid or of turnover tax so paid, as the
spect of such turnover for any quarter if the use of uch business ceases in such quarter,
ed:
laimed for turnover tax paid in excess by a person fter the end of the quarter in which such excess is

Page 239
CHAPT
RETURNS AND
Duty to furnish a return.
The Act requires every person who carries or
(i) where the turnover of that business for
(ii) Where the business is carried on by hi. business for that part of the quarter ex proportions as the number of days in t
to furnish a return to the Unit or Regional off
Such return should indicate the turnover of tha shall be submitted within 15 days from the endo be in the prescribed form and should contain a for particulars necessary for particulars necess on the nature of the business, total turnover, e computation of the tax.
From the foregoing it is evident that it is onlypt required to furnish returns. Therefore, it necess turnover tax. It is not required to furnish a retur inhisjudgementisa person chargeable with tur by him.
Fuller and further returns and information
An Assessor may require full information in r by any persons and in such instances would re
(i) to produce for examination any such b vouchers, cheques, paying in slips, auc
(ii) to attend in person or by an authorised
turnover in respect of that business.
The Act gives powers similar to the abov However his powers are wider in one im
22

ER 13
INFORMATION
any business in Sri Lanka.
any quarter exceeds Rs. 25,000; and
m for only a part of any quarter, the turnover of that ceeds the sum which bears to Rs. 25,000 the same hat part of the quarter bears to. 90,
ce dealing with his tax matters.
ut business for that quarter or part of the quarter and fthat quarter or part of that quarter. The return should ll such particulars specified in the form. Returns call sary for the assessment of the tax. They include data xcepted turnover, liable turnover and the taxpayers
arsons who are chargeable with turnover tax who are arily follows that a person who is not chargeable with h. However, an Assessor may direct any person, who nover tax to furnish a return within the time stipulated
(Section 9 (2))
espect of the turnover from any business carried on quire him:
ooks, accounts, trade lists, stock lists, registers, litors reports or other documents in his possession;
representative to be examined with regard to the
(Section 9(3))
2 to a Deputy Commissioner of Inland Revenue too. portant respect from those of an Assessor, in that he

Page 240
could examine a person or his authorise his notice to the person or his authorised turnover of that business.
An Assessor is also further given the power
further returns and information from a person with assessment of the tax
23

d representative on any matters specified by him in representative and not necessarily with regard to the
(Section 9 (4)) o call for as often as he thinks necessary fuller and regard to any matter which may be relevant for the
(Section 9 (7))

Page 241
CHIAPT)
PAYMEN"
1. Principle of self-assessment.
Turnover Tax is based on the principle of sel turnover and in terms of the provisions of the t liability himself and make payments on his c fifteenth day after the end of each quarterly pi of taxes are as follows:
First Quarter : on or bef Second Quarter : on or bef Third Quarter : on or bef Fourth Quarter on or bef
5 million.
Where the turnover of any business for any pre payable for the succeeding quarter should be
(a) 1/3 of the turnover taxpayable for the p fifteenth day of the second month in the
(b) 1/3 of the turnover taxpayable for the pre day of the third month in the succeeding
(c) the turnover taxpayable for the succeed paragraphs (a) and (b) should bepaid bei of that quarter.
Example : Mr. Perera who carries on the business the quarter ending 30.06.85. Assum 9000,000. Therefore, the tax payable for the qual
Payment to be made on or before 15.8 Payment to be made on or before 15.9 Payment to be made on or before liš.l

ER 14
T OF TAX
f-assessment. The tax is charged by reference to the urnover tax law, the taxpayer should compute his tax omputation. The tax is payable quartcrly before the riod. The specified dates for the quarterly payments
bre April 15 ore July 15 ore October 15 ore January 15
}vious quarter exceeds Rs. 5 million, the turnover tax paid as follows.
revious quarter should be paid on or before the
succeeding quarter.
vious quartershould be paidonor before the fifteenth , quarter,
ing quarter after deducting the amounts paid under fore the fifteenth day of the month following the end
ofan auctioneer has a turnover of Rs. 18,000,000 for
e that the turnover tax payable at 5 per cent is Rs.
ter ended 30.06.85 should be as follows:
85 m Rs. 300,000
85 ne Rs. 300,000
).85 - Rs. Tax payable for the quarter
ended 30.06.65
(Rs. 300,000 + Rs. 300.000)

Page 242
CHAP'
ASSESS
1. Assessments and Additional Assessments.
(i) An Assessor is empowered to issue ana:
tax:
(a) fails to furnish a return for any
(b) furnishes a return in respect of
quarter,
(c) fails to furnish a return for any ( amount payable for that quarte
(ii) Where the Assessoris of opinion thata
to do so for the protection of revenue, prior to the fifteenth day after the end
(iii) Where the assessor is of opinion that a as tax an amount less than the proper him for that quarter, he may issue an
2. Power of Assessor to estimate sale price.
Where any person who carries on the busines the purposes of distribution, at a price which such article is deemed to have been sold at a pi fetched in an open market.
3. Assessor to give reasons for rejecting the
Where an Assessor does not accept a return f assessmentor additional assessment, he shoul under registered cover, his reasons for not acc is mandatory.

TER 15
MENTS
sessment where any person chargeable with turnover
quarter and to pay the tax in respect of that quarter;
any quarter but fails to pay the tax in respect of that
Juarter and pays as taxan amountless than the proper
r.
personisabout to leave Sri Lanka or thatitis expedicnt he may issue an assessment for any quarter at any time
of that quarter.
a person chargeable with tax has for any quarter paid amount of the taxpayable by him or chargeable from
additional assessment.
(Section 13 & 14)
s of a manufacturer of any article sells such article for would reduce the turnover tax payable by him, then ice which in the opinion of the Assessor, it would have
(Section 16)
return.
urnished by any person for any quarter and makes an d communicate to such person in writing by letter sent
:epting the return. Thus, the provision to give reasons
(Section 15)

Page 243
CHAPT)
APPEA
Petition of Appeal.
Any person who is aggrieved by any assessme against such assessment to the Commissioner-C the following conditions:-
(a) Appeal must be in writing addressed to th
(b) Appeal must be made within thirty days (
(c) Appeal must state precisely the grounds (
(d) Where the assessmentor additional assess
of a return, the petition of appeal must
Further, any person preferring an appeal against lst April, 1993 must pay the turnover taxpayab by that person) together with any penalty accru appeal. The Commissioner-General has powert tax and the penalty by apcrson where the Comm. to pay the tax and the penalty owing to serious fi reasonable cause. (Section l 7 (3A). If the pe conditions, it will not be valid.
Late Appeal.
The Commissioner-General on being satisfied within the prescribed period due to (a) absence. cause, shall grant an extension of time for perfor on which a late appeal could be admitted.
Appeals to the Commissioner-General.
On receipt of a valid petition of appeal, the Com made by the Assessor on the matters specified i agreement is reached between the appellant and 1 will be made. Where no agreement has been re Commissioner-General ora Commissioner ora will hear the appeal and make his determination Commissioner-General in making his determin assessment appealed against and shall commun on thc appeal.
233

ER 16
ALS
nt or additional assessment has the right to appeal ieneral. Every petition of appeal should conform to
e Commissioner-General;
if the notice of such assessment;
if appeal;
ment appealed against has been made in the absence be sent together with a return.
any assessmentor additional assessment on or after le by such person on the basis of return (furnished led thereupon and attach the receipt along with the o grant an extension for the payment of the turnover issioner General is satisfied that the person is unable nancial hardship suffered by the appellantor other tition of appcal does not conform to the above
that a person had been prevented from appealing from Sri Lanka (b) sickness or (c) other reasonable ming the appeal. These constitute the only grounds
missioner-General may cause further inquiry to be in the appeal. If during the course of the inquiry an he assessor, inccessary adjustment of the assessment achcd between the appellant and the Assessor, the Deputy Commissioner specially authorised by him
on the matters raised in the petition of appeal. The ation may confirm, reduce, increase or annual the
icate in writing to the appellant, his determination

Page 244
Appeals to the Court of Appeal.
The decision of the Board of Review is final. if dissatisfied with the decision of the Board, n The Court has the power to increase, decrea:
Appeal to the Supreme Court.
Aparty dissatisfied with the determination of
The Court of Appeal would grant leave to app of dispute involves a substantial question of

However, the Commissioner-General or the appellant ay appeal to the CourtofAppealon a question of law. e, confirm or annul the assessment.
the court of Appeal may appeal to the Supreme Court. eal to the Supreme Court only when the subject matter law.
34

Page 245
OHΑΡΤ
CLARIFICATIONS O
The following are some clarifications given by the C representations by taxpayers, accountants, trade ass correct rate currently applicable in respect of his busi are not conclusive statements of the law. Nor are the be different from the case in which they were given
(i)
(ii)
(iii)
Air Lines:-
Airlines are liable on the total money receivabl Where a ticket has been sold in Sri Lanka no
.in respect of any transfer on route of the passe
Money received from the sale of passenger ti or America Express Cards is treated as part of
Books :
Books include cash books, memo books, chequ are not deemed to be books. A calendar with
Club :
A club is a 'person'. A Club's liability depends ( which is statutorily defined.
Where a club enters into transactions with per liability to turnover tax.
Where the transactions are between the memb case. The widely held view that a social club doe on the principle that a man cannot trade with
income tax rules which deal with 'Profits'. The
There are however, legal precedents to suppoi to other taxes e.g., sales taxes and VAT. The principle that wherever transactions are typical liable turnover.
Where for instance, a request is made for mer
additional facilities for the club. Any contribut where a member pays for a drink at the club b
23

ER 17
NTURNOVERTAX.
ommissioner of Turnover Tax. They were made on ociations etc. Any person interested in knowing the ness is welcome to ask for such clarifications. These y meant to apply to cases where circumstances may
2 on the purchase in Sri Lanka of anypassenger ticket. adjustment can be granted for the value of the ticket nger on a different Airline.
ckets in Sri Lanka on Diner's Cards
the turnover of an Air line.
ebooks, receipt books, diaries, ledger, Writing pads writing material is not a book.
on whether it is carrying on a "business' in Sri Lanka,
sons who are not members of the club there is clear
ers themselves liability depends on the facts of each 's not carry on business with its own members is based himself and make a profit. This view is a legacy of
principle is called the "principle of mutuality."
t the view that the income tax view does not extend Department follows this view which is based on the ly business like, the receipts of such transactions are
nbers of a club to contribute for the construction of ion will not be treated as turnover on the other hand ar it would constitute liable turnover of the club.

Page 246
(iv)
(v)
(vi)
(vii)
(viii)
Films :
The turnover of a distributor is the amount exhibitor is the gross amount received (i.e.fr
The exhibitoris considered an agent of the loc,
The exhibitor and distributors are not deemed show but are treated separately for turnover
Both exhibitor and distributor are liable at th
The producer is liable as a "Manufacturer' bu currently the same rate applied to exhibitors money receivable by him. The fuel Utility re forms part of his turnover.
Garment Manufacturers :
Sale of their (1) "Off cuts' = ther (2) "Rejects' تنخفضة ther (or the relevant m
Lottcry Tickets :
Agents who sell lottery tickets are liable to tax selling the tickets may be exempted under Se
Photographic Prints:
The concessionary rate of 5% applicable to th board and papcrboard articles (includingboxe covers' does not apply to photographic materia Photographers and studios selling photograph applicable to manufacturers. Taxpaid to other of Customs could be claimed as a set off aga
Poultry Farming;
The produce of a poultry farm are subject t manufacturing business. Any taxpaid for inpu as a set off undcr section 47. However since t any input tax paid to the Principal Collector ol facts are covered by section 48.

receivable from the exhibitor'. The 'turnover of an om filmgoers) less entertainment tax.
al authority for the collection of the entertainment tax.
to be carrying on a partnership in relation to the film ax purposes.
e rate of tax applicable to "services".
It is liable at a concessionary specified rate which is and distributors. The turnover of the producer is the covery charge levied by the exhibitor is taxable and
ate is 1% ate is 10% anufacturing rate)
c on the commission received although the institution ction 4.
le business of printing on paper, paper articles, paper 2s, cartons, corrugated boxes, cups, envelopes and file ll. Photographers who render services are liable at 5% is printed by them are liable at l0% which is the rate registered manufacturers orto the Principal Collector inst the 10% tax.
o a 5% tax, the rate applicable to unspecified, nonts or raw materials used in the farm will not be allowed he application of rules under section 48 are different, fCustoms on imported inputs may be deducted if the

Page 247
(ix)
Travel Agent:
Please see the definition ofatravelagentin Gaz section 4 (1) of the Ceylon Tourist Board Act
A travel agent provides the following services
(a) the issue of transport tickets or the booki
(b) the reservation of accommodation in hot providing lodging and refreshment,
(c) providing receptions at ports of entry, ass passports, visas, exchange control permi
(d) the organisation of excursion or tours eith or the sale of travel tickets and the prov
With effect from 1.7.87 any fee or reward fron agent will be liable at 3%
Travel agents not approved by the Sri Lanka T
23

ette No. 159of11.04.1975. This isa definition under No. 1 () of 1966.
ng of seats for passengers for travel;
el, rest house, guest house and other places
sistance in the securing of travel documents such as is and the clearing and transportof baggage,
er onan allinclusive basis orona commisson basis ision of related services.
1 the above mentioned services rendered by a travel
ourist Board should pay at the 5% rate.

Page 248
CHAPT
SUMMARY
Associated
V;
Commissioner of
S. C.
SAMARAWICRAME, J. UDALAGAMA, J., SHARVANANDA, J.
The appellant company was a manufacturer of el company on the basis that these came within the des and otherelectrical goods not elsewhere specified."I Part of the Order in Government Gazette No. 14929C
turnOVer tax.
Held; The expression 'other electrical goods' in ele electrical goods" could not be construed eiusdem ge insulated wires came within the meaning of "oth apparatus or appliances. The assessment was confi
S. E. Captain (Secco
V!
Commissioner of
S.C.
WIJAYATILAKE, J., WALGAMPAYA, J., SIRIMANE, J.
The assessee, a manufacturer of toothbrushes, was appealed on the ground that a manufacturer of tooth words in Part VIII of the Schedule published in Ceylo "cosmetics, perfumes, hair-dressing and toilet requi
Held: Tooth brushes were not articles which fell w
23

TER 18
OF CASES
Cables Ltd.,
S.
f Inland Revenue
1173
ectrical insulated wires. The Assessor assessed the cription "electrical machinery, apparatus, appliances nsulated electrical wires were not specified in any other of 26.10.70 which specified various rates of business
2ctrical machinery, apparatus, appliances and "other neris and confined to electrical appliances. Electrical 2r electrical goods" which need not be machinery, Tmed as correct.
Brushes Corporation)
S.
f Inland Revenue
2/73
s assessed to business turnover tax at 15 per cent. He brushes was not liable to tax at 15% as covered by the n Government Gazette No. 14864/9 of2.8.69-namely sites (excluding soap, hair oil and tooth powder)."
ithin the scope of the words in Part VIII.
8

Page 249
Commissioner 0
V,
Reckitt and Colm S. C.
TENNEKOON, C.J., WIJAYATILAKE, J. WALPITA, J.
The assessee imported ultramarine blue in bulk unde the name of "Robin Blue'. 'Robin Blue' was packete Under Section 159 of Finance Act No. 1 l of 1963 ama as a person who "(a) makes an article, (b) assemble or otherwise, (c) adapts for sale any article". The argu tthere was any adaptation ofan article by the assessee
Held: It was a question of fact whether an article sc cleaning and in various ways handled so as to be m case there had been no manufacturer. No. adaptation not make any difference to the blue which had been
Perera and
Commissioner Gener S.C. .
THAMOTHERAM, J. RAJARATNAM, J., COLIN-THOME, J.
The appellant company was a manufacturer of woode wooden boxes), it supplied these boxes to local buy questionatissue was whether the sale to local buyers the Order published in Gazette No. 14864/9 of 2.8.6 exported.
Held, The assessee had not been engaged in the busir transaction between someone in Sri Lanka and a per manufacturer who was also an exporter of goods m
Gazette No. 83/8 ofl. l 1.73 amended the Order unde
manufactured in Sri Lanka and exported by the manu the substance of the previous expression and that bo
23

Inland Revenue
an of Ceylon Ltd., 1/74
rthe trade name 'Seagull Blue" and sold it retail under both mechanically as well as by a manual process. nufacturer liable to business turnover tax was defined s or joins any article whether by mechanical process ment for the Commissioner was restricted to whether and therefore whether the assessee was manufacturer.
old had been previously adapted by sorting, grading, de legally and commercially saleable. In the instant had taken place. The sale under a new trade mark did imported in bulk.
Silva Ltd.
'al of Inland revenue 3/76
in boxes and shooks (a component used in assembling ers who used the boxes for their export trade. The who exported goods in those boxes was exempt under 9 which exempted "articles manufactured in Ceylon
ess of exporting articles. Export connoted a business son abroad. The exemption was applicable only to a anufactured by him.
r Gazette No. 14864/9 using the expression "articles acturer"It was held that this amendment did not alter th meant the same.

Page 250
T. Tirunavukarasu (Y V
Commissioner 0
C.A. (SC
ABDUL CARDER. J. VICTOR PERERA. J.
The appellant was a manufacturer of aluminium ho the products of his undertaking were "produced exc means", and that paral (d) of part VII of Gazette 1498 l/5 of 27. 10. 1971 applied. For non manual me of Review was of the view that of the four methods by spinning, by casting and by beating, the process factory a spinning lathe had been used. Considerab fact that the spinning lathe was powered by electricit or tool for manual labour The Board confirmed the
Held : The Court of Appeal dismissed the ap (Both parties were absent and unrepr
C.W. Mack
V
Hugh Molagoda, Commis
S.C.
S. SHARVANANDA, C.J. | ATUKORALE, J. THAMBIAH, J.
The petitioner was carrying on business, interalia, of a under the Turnover tax Act No. 69 of 1981 it was 1 80 and 31. 12. 82 Rs. Rs. 2, 109,001. 43 had been of a letter dated 24.01.83 written by the Commissio Rubber Dealers' Association in which he had mentic "not to recover any turnover tax on rubber from rub sought to get a resund of the tax paid but the claim w tax was legally due and there was no basis underth to the supreme Court under Articles 12(l) and 126 the refund was mala fide and that it constituted unla turnover tax laws against other rubberdealers liable right to equal treatment.
24

(arl Metal Industries)
S.
f Inland Revenue
) No. 1/78
low ware. He paid tax at the rate of 3% claiming that lusively by the use of manual labour and not by other Extraordinary No. 14929/10 of 26. 10 1970 and No. ans of production 20% was the rate of tax. The Board of producing aluminium hollow ware viz. by power, of casting and beating was manual. In the appellant's le manual effort went into this. The Board found as a y and in its speed of operation it was not an implement
assessment at the rate of 20%.
peal. sented).
ie & Co Ltd,
s.
sioner-General and others
85/85
rubberdealer. Interms of regulations (gazettes) made iable to tax on its local sales of rubber. Between 1.4. aid as turnover tax. The petitioner came to be aware ner-General to the Secretary, Sri Lanka (All Ceylon) oned that administrative arrangements would be made ber dealers up to December 31, 1982'. The petitioner as rejected by the Commissioner-General because the e law to refund it. The petitioner made an application (4) of the Constitution complaining that the denial of wful discrimination and that the failure to enforce the Lo the tax was a breach of the petitioner's constitutional

Page 251
Held: The Commissioner-General's powers and duti vires for him to renounce a duty to collect tax from r relief was due to the petitioner under Article 12 of thi by that Article was equal treatment in the performa infringement of a fundamental right because there wa To compel the Commissioner-General to refund the
Board of Review (
The appellant was a manufacturer of deep freezers, in the absence of aspecific reference to such articlesir these could be brought under the expression (in components and spare parts" The Sinhala Order karanayantaraya.
The decision of the Board in dismissing the appeal covered all types of refrigeration appliances.
24

es were defined by the Turnover tax Act. It was ultra ubber dealers who were defaultcrunder the Act. No. 2 constitution because the equal treatment guaranteed ance of a lawful act. In the instant case there was no s no discrimination in the performance of a legal right. tax lawfully due was to commit him to an illegality.
case : BRA/BTT 8
bottle coolers etc. The question at issue was whether the relevant order in Gazette No. 14820/4 of 26.09.68
the Order) "refrigerators, refrigerator accessories, of that Gazette referred to refrigerators as Seetha
turned on the Sinhala expression which, it was held,

Page 252
CHAP
RATES OF TA
1. The rates of turnover tax in respect of any
Gazette. The rates applicable from 1993 arc
(i) (ii) (iii) (iv) (v)
Gazette No. 751/20 of 29t
Gazette No. 781/8 of 26t
Gazette No. 784/15 of 15t
Gazette No. 792/15 of Ot
Gazette No. 804/7 of 31s
2. The rates of tax vary from 1% to 20% depc contained in Gazette No. 75l/20 of 29th Jan been changed by subsequent Gazettes.
BY virtue of the powers vested in me under Section Banda Wijctunga, Minister of Finance, by this Orde
1, 1993 :-
1. fix the following rates of Turnover Tax subje Part of this Order or the Order under Sectio
(a)
(b)
(c)
in respect of the turnover of a bus importer of any article described i the rate of the of tax specified in C
In interpreting the description of a Harmonized System published, b possible be applied.
(Note - The Customs Notification a resolution under Section 10 of sufficient guide in most instances.)
in respect of the turnover of any bl importer of any article not specifie 4 of the "Explanatory Notes'

TER 19
X - SECTION 7
usiness is fixed by the Minister and published in the published in the following Gazettes :-
1 January, 1993 August, 1993 1 September, 1993 1 November, 1993 t January, 1994
:nding on the business. The Order under Section 7 as uary, 1993 is given below but some of these rates have
7 of the Turnover Tax Act, No. 69 of 1981, I, Dingiri r with effect from the midnight of January 31/February
:ct to any express provision to the contrary in any other n 8 of the aforesaid Act -
siness carried on by any person as a manufacturer or n Column 3 of Part 1 .................................................. olumn 4 of that Part.
rticles, Rules set out in the "Explanatory Notes' to the y the Customs Co-operation Council, shall as far as
containing a Revenue Protection Order which follows the Customs Ordinance (Chapter 235) will provide
-
usiness carried on by any person as a manufacturer or d in Part I of the aforesaid schedule and to which Rule to the Harmonized System does not apply
• 4 • 4 • 48 • > K. KO am · «» «» « 20 per centum.
business specified in Part II of the Schedule hereto
M A 84 8 & a & a so a w 4 & 8 2 per centu
242

Page 253
(d)
(e)
(f)
(g)
(h)
(i)
(i)
(k)
in respect of the turnover of any busir
II thereto applicable to the turnover sp
in respect of the turnover of any
in respect of the turnover of any busin hereto ........................... 5 per centum.
The Order made under Section 7 and published 16, 1986 and amendments thereto shall cease to : respect of any turnover arising after the midnigh
7 4?

ess in Part III of the Schedule hereto
S S S S S S S S S S S S SL S S S S S S S S S SS S SS SS 3 per centum.
business in Part IV of the Schedule hereto
S S S S S S S S S S S S S SC S S SSL S S S 0S L 0 S SS 4 per centum.
business in Part V of the Schedule hereto
LSL S S S S S S S S SL LSL LSL S SL S LS SS SS SS SSL SSL SSL S S S S S S 5 per centum.
business in Part VI of the Schedule hereto s o e o 8 o e o o 8 a. the percentage specified in Column ecified in Column I.
business in Part VII of the Schedule hereto
SSL S S S S S S S S LS S S S S S S S LSL LSL L LS SS SS SSL SS 10 per centum.
business in Part VIII of the Schedule hereto
S S S S S S 0 S S S S S S S S S S S LS S S S S S S S S S S LSL 20 per centum.
business in Part IX of the Schedule hereto
S S S S S S S S S S S LS SL S SL S SL 0SL LSS LS SS LS SS SS SS SSL S S S l per centum.
ess not specified in any other Part of the Schedule
inGazette Extraordinary No. 432/3 of December apply, upon the coming into effect of this Order, in ut of January 31/February 1, 1993.
D. B. WIIJETUNGA Minister of Finance.

Page 254
2.
2.2
PA
CHAP
STAMR
Introduction:
Stamp Duty is charged in terms of the Stamp I presented by the Minister of Finance under Sec lst January, 1983. This Act has been amende
(a) Stamp Duty (Amendment) Act No. 71
(b) Stamp Duty (Amendment) Act No.27 c
(c) Stamp Duty (Amendment) Act No. 29
Chargeability of Stamp Duty.
Section 2 of the stamp Duty Act imposes th and instruments is respect of which the duty i
(a) Every instrument which is executed, dr
(b) Every document presented or filed in ci Court of Appeal or a District Court or i
(c) Bill of Exchange, cheque or promissory presented for acceptance or paymento Lanka.
(d) Instruments (other than those mentioned in Sri Lanka. Suchinstrument being one v or thing done or to be done in Sri Lank
(e) Every document in relation to any trans; Lanka for the withdrawal or transfer of
Stamp Duty payable to Provincial Council
With the setting up of Provincial Councils co Constitution the levy of the Stamp Duty on c. Councils. Every Provincial Council set up in Stamp Duty.

T 3
TER1
DUTY
)uty Act No. 43 of 1982 and the Gazette notifications tion 69(2) of the same Act. This Act is applicable from d by the following Acts:
of 1988 - certified on 17th December, 1988.
f 1991 - certified on 5th July, 1993.
of 1993 - certified on 29th July, 1993.
duty to be paid and specifies the documents s chargeable. These are: -
awn or presented in Sri Lanka.
vil proceedings instituted in the Supreme court or the n Admiralty proceedings in the High court.
note drawn outside Sri Lanka and accepted or paid or
rendorsed, transferred or otherwise negotiated in Sri
in (c) above, executed outside Sri Lanka and received which relates to any property in Sri Lanka orany matter
.
action which a person enters into with any bank in Sri money.
S.
insequent to the Thirteenth Amendment to the
rtain instruments is entrusted to the Provincial Sri Lanka has passed legislation imposing the
44

Page 255
The following instruments/documents are liab respective Provincial Council :-
(a)
Every instrument relating to a transfer
province.
(b) Every document presented or filed in pro
law in the particular province.
(c) Every transfer of a motor vehicle effect
3. Exemptions - Section 5
The following instruments and documents are
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
affidavit or affirmation made at the
agreement of covenant secured by a as a mortgage,
agreement to marry,
bail bond in criminal proceedings;
bond or mortgage in pursuance of ot with ad valorem stamp duty,
bond of identity given to a public of
cheque drawn in the service of the s
conveyance of transfer by the govel
debenture issued by a company or c
deed of partition of any land held in
instruments executed by or on bel government would be liable to pay t
instruments executed for the governn to the Government of Sri Lanka;
letter of creditsent by a person in Sril on Sri Lanka.
24

le to the Stamp Duty which has to be paid to the
of immovable property situated in the particular
ceedings instituted in any court of law established by
2d in the particular province.
exempt from Stamp Duty :-
request of any public officer,
mortgage if such instrument has been duly stamped
her instrument if such instrument has been stamped
ficer in the execution of his duty,
tate,
nment or on behalf of the government;
ther corporate body in terms of a mortgage deed;
Common,
half of or in favour of the government where the he duty,
hentofany country, where similar exemption is given
lankato a person outside Sri Lanka authorising drafts

Page 256
(xiv)
(xv)
(xvii)
(xvii)
(xviii)
(xix)
(XX)
(xxi)
(xxii)
(xxiii)
(Xxiv)
(xxv)
(XXvi)
(xxvii)
mortgage of food crops;
receipts given on money deposited in
receipts given for less than one hund
share certificate issued upon sub divi
share certificates issued in lieu ofcer
will, testament or codicil.
instrument, other than an application agency, trust receipt or a letter of tr movables in favour of any such agen section 24, executed by, or on behalf ( but for this exemption, the Governm respect of such instrument.
All documents filed by or on behalf of assuing, defending or intervening with of 1978.
All documents filed in any court by, ol from death or damages caused by a m
Instrument executed in pursuance oft Security Benefit Scheme Act, No12 o
share certificate issued inrespectofan Information Bureau of Sri Lanka, est Lanka Act, No. 13 of 1990;
instrument executed for the transfer c credit Information Bureau of Sri Lank Sri Lanka act, No. 13 of 1990
convertible debenture certificate or su determined by the Minister, issued i convertible security as the case may be executed for the transfer of such debent issue was made or transfer was done c
certificate ofdeposit(otherthanany su or his nominee issued on orafter April 1 is not encashed at any time prior to th
246

a bank,
red rupees;
sion of existing shares;
tificates lost,
for a letter of credit made to an approved credit ust or declaration of a trust in respect of corporal cy or any contract mentioned in paragraph (ee) of of, or in favour of, the Government in cases where, ent would be liable to pay the duty chargeable in
any person, who is certified by a prescribed officer legal aid provided under The Legal aid Law, No.27
r on behalf of any person claiming damages arising otor vehicle.
he provisions of The Farmers' Pension and Social f 1987.
y share, in any quoted public company or the Credit ablished by the Credit Information Bureau of Sri
if any share, in any quoted public company or the a, established by the credit Information Bureau of
ch other instrument of a similar character as shall be n respect of any convertible debenture or other , in any quoted public company and any instrument ure or of such other convertible security, where such on or after April 21, 1993; and
Ich certificate which bears the name of the depositor , 1993 for a period not less than four years and which e expiry of that period.

Page 257
Composition of Stamp Duty.
Section 13 of the Stamp Duty Act authorises th compound for the payment of Stamp Duty of c. persons are covered by Section 13:-
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Any person issuing insurance policies.
Any Company issuing shares, whether suc stock.
Any bank doing business in Sri Lanka
Any employer making payments to emp respect of such payments.
Anofficer of the Supreme Court, Court of, Court created or established by law.
Any credit card company making paymen
Any institution encashing travellers cheq
Any other person issuing instruments o
impracticable or inexpedient to stamp inst prescribed by the Stamp Duty Act.
The composition for the payment of the Stamp General of Inland Revenue subject to the follov
(i)
(ii)
That such person, company, bank, employ person, as the case may be, enters into Revenue in the prescribed form.
That such person, company, bank, employ person maintains:-
(a) A record of the insurance policies is
(b) A record of the shares or debenture
(c) A record of the cheque forms suppl.
(d) A record of documents in relation t bank in Sri Lanka for the withdraw
247

e Commissioner - General of Inland Revenue to ertain instruments and documents. The following
hissue is original or increased or creating debenture
loyees who are liable to give stamped receipts in
Appeal, the High Court, a District Court orany other
ton the presentation of a claim, demand or request.
ԱՇՏ
f a category having regard to the fact that it is uments of that category at the time, or in the manner
duty payable is authorised by the Commissionerwing conditions:-
er, officer, creditcard company, institution orother bond with the Commissioner-General of Inland
er, officer, creditcard company, institution orother
sued by such person, or
stock issued by such company.
ied by such bank.
o transactions which a person enters into with any al or transfer of money.

Page 258
5.
6.
(e) A record of receipts by such emplc
(f) A record of the documents present
instituted in such Court.
(g) A record of the claims, demand or 1 traveller's cheques encashed by suc
(h) A record of the instruments issued
(iii) That such person, company, bank, emplo person remits to the Commissioner - Gen may be specified by him
The terms "credit card" and "credit card comp
"credit card" means an authorisation gra purchase on credit, any goods or service
"credit card company" means any comp supplied by a merchant, on credit, to the h on the authority of such credit card;
Time and Mode of Stamping
(i) Instruments shall be stamped at or befol which are stamped within one month ofe at the time of execution.
(ii) Instruments may be stamped either by the however it is not practicable to use adhes may on payment of money equivalent to duty has been paid.
(iii) Whcre thepaymentofstamp duty is by ad it. Where the value of the adhesive stam addition to the writing across it by cutting not cancelled in this manner the instrum
Liability to Stamp Duty
Who is liable to pay stamp duty?
Instrument
(a) Policy of Insurance (b) Conveyance
24

yeeS.
2d or filed in civil or admiralty proceedings
equest presented to such credit card company or the h institution.
by such other person.
yer, officer, credit card company, institution or other eral of Inland Revenue at the end of such periods as
any" are defined in section 71 and is as follows :-
inted to any person by any credit card company to s from any merchant,
any which makes payments for goods or services older of any credit card issued by such company and
re the execution of the instruments. Share transfers xecution are deemed to have been stamped before or
use of adhesive stamps or impressed stamps. Where ive or impressed stamps, the Commissioner-General the stamp duty endorse on the instrument that stamp
hesive stamp it should be cancelled by writing across p used is Rs. 50/or more it should be cancelled in it with a prick, punch, cutter or nipper. If stamps are ent is deemed to be unstamped.
- Section 24
Payer
Person effecting insurance
Grantee

Page 259
(c) Agreement to convey (d) Lease (e) Agreement to lease (f) Instrument of Exchange (g) Transfer of shares (h) Any other instrument
If an instrument is not duty stamped every pe liable to pay the duty and penalty.
Valuation
Section 15 of the Stamp Act states that the stal conveyed shall be on the value of the property.' of the Assessor that property would have fetch The exception to the market value is only in the has acquired prior to 31st March 1977. In the ca value of the property as at 31st March 1977 in additions to the property made after 31st Marc
Duties of Notaries Public
The Stamp Duty Act No. 43 of 1982 cast dut making, executing or attesting any instrument c names and addresses of the parties to such ins payment and all other facts and circumstances stamp duty and the amount of the stamp duty Notary Public who attests an instrument of Cor is paid represents the value of the property conv affix stamps of the correct description and valu directed by the Act and state in his attestation
instrument. An obligation is also cast on every - (otherwise than as payment for any goods solc or promissory note or in satisfaction or part sal duty stamped receipt for the same.
Admissibility of Instruments
It has to be noted that no instrument chargeab evidence by any person having by law or co registered, or authenticated or acted upon by a or approved creditor agency unless such inst unstamped instruments shall be admitted in evi not exceeding three times the property duty is pa cents or less promissory note, cheque or Bill of
24

Intended grantee
Lessee
Intended lessee Parties in equal shares Transferee Drawer, maker or executor
son executing or signing such instrument shall be
np duty on any instrument by which any property is Value" is defined to be the price which in the opinion 2d in the open market on the date of the conveyance. case of a gift of immovable property which the donor se of these gifts the value of stamp duty is the market creased by the cost of improvements, alterations or h 1977.
ies on Notaries Public and other persons drawing, hargeable with stamp duty to set out therein the full trument, the consideration, the date, and manner of affecting the chargeability of such instrument with with which it is chargeable. A duty is cast on every Iveyance to satisfy himself on which the stamp duty eyed. If adhesive stamps are used the Notary should e to such instrument and cancel them in the manner he number and value of the stamps affixed to such person receiving monies amounting to over Rs. 100/ or services provided) or Bills of Exchange, cheque isfaction of a debt any movable property to issue a
e with stamp duty shall be received or admitted in nsent of parties, authority to receive evidence or y officer, in a public office or corporation or bank, rument is duly stamped. Provided however such lence or acted upon if the proper duty and a penalty d. Instruments chargeable with a stamp duty of fifty Exchange (other than a Bill of Exchange referred to

Page 260
10.
in Section 34) are not included and exempted. P doubt the opinion of the Assessor the amount of chargeable with duty and the assessorshallendo. been paid. Provisions are also made for appeals aggrieved by such decision. Section 54 of the Stamp Duty Act provides for rel a refund could arise are -
(a) where a stamp has been inadvertently or u
(b) when it was found that a particular instrum due to incompleteness, a mistake, etc., or.
(c) in an instance of a stamp of wrong descri
instrument which was later replaced by a
(d) when a stamp has been used for a bill of e
A person can obtain a refund by making an ap Revenue within one year of the date of purchase Revenue on being informed may either give othel the value of the stamps in money subject to a fi
Section 55 of the Act provides for a claim for ar. so payable will be refunded in money.
Offences and Penalties
What are the offences and penalties under the S
Offence
(a) Draw or use of any bill of exchange,
cheque or promissory note without it being duly stamped.
(b) Execution of an instrument without
it being duly stamped.
(c) Failure to cancel an adhesive stamp
(See para 20)
(d) Failure to issue a receipt
(See para 15)
(e) Voting under any proxy not duly stampec
250

rovisions are made in the Act to obtain, in cases of the proper stamp duty payable on any instrument 'se on the instrument that the proper stamp duty has against the decision of the Assessor, by any person
und of stamp duty. The circumstances under which
indesignedly spoiled and rendered unfit for use, or
ent to be of no use for the purpose it was intended
ption and value being inadvertantly affixed on an duly stamped instrument, or
xchange, etc. which has notbeen usedatal.
blication in writing to the Commissioner of Inland of the stamp. The Commissioner-General of Inland stamps of the same description and value or render ve per cent deduction in value.
efund of duty or penalty paid in excess. The excess
tamp Duty Act?
Penalty on legal action
a fine not exceeding Rs. 500
a fine not exceeding Rs. 500
a fine not exceeding Rs. 500
a fine not exceeding Rs. 500
a fine not exceeding Rs. 500 (Section 56)

Page 261
(f)
(g)
(a)
(b)
(c)
(d)
(e)
(f)
Issue of share certificate or warrant without being duly stamped
Failure of a Notary Public to act in accordance with the provisions of this Ac
What are the offences and penalties for d
Offence
Effects an instrument with the intention t defraud the State
Unlawful detention of money received for payment of stamp duty
The use of any stamp not genuine or has been previously used
Doing any other act to deprive the State of any duty or penalty
Failure to comply with any requirerequirement imposed by the Commission General under Section 27 (2)
Obstruction to performance of acting
under Section 27 (4)
11. Stamp Opinion
How to obtain a stamp opinion?
(a)
(b)
(c)
Any person desirous ofobtaining theopin on any instrument may do so by making or not together with a copy thereof, and
A payment of Rs.250 along with the appli of Inland Revenue.
The determination of the Assess or will b
25

a fine not exceeding Rs. 5,000 or imprisonment or both
a fine equivalent to the Stamp Duty payable on the instrument and a further Rs. 5,000 or imprisonment not exceeding six months or both
efrauding the State?
Ca
Penalty on legal action
afine notexceedingRs.5,000 orimprisonment not exceeding six month or both
a fine equal to the amount of the money detained and an amount not exceeding Rs... 5.000
a fine consisting of a sum equal to ten times the amount and an amount not exceeding Rs. 5,000
As in (a) above
As in (a) above
As in (a) above
(Section 59)
ion of the Assessor as to the Stamp Duty chargeable an application to him with the instrument executed
cation made to the credit of Commissioner-General
be delivered in writing
(Section 39)

Page 262
12. Appeals
Who is entitled to make an appeal against a (
Any person aggrieved by an opinion given o an appeal to the Commissioner-General of In
How an appeal should be made?
(a) It must be made in writing and address
(b) It must be made within one month of th
(c) It should set out the grounds of such ap
GAZETTE ORDERS &
Gazette Orders under section 69 of the Stamp Duty
Number
(i) 224/3 (ii) 249/23 (iii) 269/15 (ν) 280/33 (v) 323/31 (vi) 326/11 (vii) 348/4 (viii) 375/18 (ix) 427/12
(x) 521/18 (xi) 549/14 (xii) 638/12 (xiii) 636/15 (xiv) 656/26 (xv) 671/12 (xvi) 688/35 (xvii) 699/23 (xviii) 799/15

lecision on Stamp Duty?
a notice issued by an Assessor, is entitled to make land Revenue.
(Section 40(1))
ed to the Commissioner-General of Inland Revenue.
le date of the opinion or notice, and
peal.
SUMMARY OF RATES
7 Act read with Section 2 of the Act.
Date
20-12-1982
17-06-1983
03-11-1983
20-1l--1984
15-1 - 1984
04-12-1984
07-05-1985
13-11-1985
12-11-1986
31-08-1988
16-03-1989
30-11-1990
15-11-1990
02-04-199.
17-07-1991
15.-1.-1991
31-01-1992
30-12-1993

Page 263
Readers are requested to refer to the above ( to the particular transaction. A summary of the rates applicable is given b
RATES OFS
PART 1: GENERAL
1.
2.
ACKNOWLEDGEMENT of a DEBT of Rs.
AFFIDAVIT or AFFIRMATION (Not intenc
AGREEMENT relating to
(a)
(b)
(a)
(b)
(a)
(b)
(c)
the PAWN or PLEDGE of MOVABLE
MORTGAGE or TRANSFER or ANY for every Rs. 1,000/- or part ther
APPLICATION for a LETTER OF CR Agency, or TRUST RECEIPT or LETT TRUST in respect of MOVABLES in f
for every Rs. 1,000/- or part ther
If such credit facility is for export of go
in any Duty Free Shop or import of an
manufacture of goods for export
for every Rs. 1,000/- or part there
BILL OF EXCHANGE (other than a C payable on demand or order on a Bank. demand or at sight on presentation or w
BILL OF EXCHANGE, DRAFT or OR (otherwise than on demand or at sight e for every Rs. 1,000/- or part thereof
CHEQUE or DRAFT payable on dema of a Bank in Sri Lanka
BILL OF LADING for each part of every set
(a)
BOND, PLEDGE, BILL OF SALE or M money affecting any property -
2

Gazettes to ascertain the appropriate rate applicable
elow:-
TAMP DUTY
100/- or more in amount or value ... 0.50
led for filing in Civil Cases) r 1.00
PROPERTY or
PROPERTY. eof a 1.00
EDIT made an approved Credit TER Or DECLARATION OF avour of such Agency
eof 20.00
ods from Sri Lanka or sale of goods y plant, machinery or fixture for
eof KO O O 0.50
HEQUE, PRO NOTE or DRAFT for periodical payments) payable on
ithin 3 days after sight a 0.25
DER payable at any time tc.)]
.00
nd and drawn by or on behalf
00
0.00
MORTGAGE for a definite sum of

Page 264
10.
ll.
12.
13.
(i) where the amount does not exce
Rs. 1,000/- or part thereof
(ii) where the amount exceeds Rs. 2.
or part thereof.-
(b) BOND hypothecating any sum of mon any actor fulfilment of any obligation any loss damages or expenses for ever
BROKER'S NOTE
CERTIFICATE OF AUTHENTICATION,
(a) By a Public Officer of a copy or extrac
(b) By an Officer of the Ministry of Foreig on any document or copy or extract thi
CHARTER-PARTY or any AGREEMENT
any vessel
CONTRACT FOR CONSTRUCTION WOR
DEBENTURE including DEBENTURESST transferable by any mode) - for every Rs. 1,
DEED or INSTRUMENT -
(1) for EXCHANGE of ANY PROPERTY
(a) if of equal value, the same duty a
at the market value thereof
(b) if of unequal value, the same dut which is of the HIGHER VALU
(2) for the EXCHANGE of ANY PROPER
(a) if of equal value
(b) if pecuniary consideration for eq a conveyance of a property the v
DIFFERENCE in the market val
DELIVERY ORDER for goods exceeding R
2

ed Rs. 25,000/- for every
1.00
5,000/- for every Rs. 1,000/-
10.00
sy as security for performance of under any contract or indemnifying y Rs.1,000/- or part thereof ... 10.00
1.00
t of any document issued by him ... 10.00
in Affairs of a signature appearing ereof ... 100.00
or CONTRACT for the charter of
100.000
K-See Item 15(a)
OCK (being a marketable security 000/- or part thereof A 10.00
otherwise than between co-heirs - ....
as on a conveyance of such property
y as on a conveyance of a property E at the market value thereof.-
TY between co-heirs
10.00
uality is given, the same duty as on alue of which is equal to the ue of the properties exchanged
s. 1,000/- in value - A 1.00
54

Page 265
14.
15.
16.
17.
GIFTS or DEEP OF GIFT of any property
(a) for every Rs. 100/- or part thereof of th
(b) for every Rs. 100/- or part thereof of th
NOTE: The value if immovable proper
(l) Where the property was acquired by th
(a) its market price at that date incre made to that property up to the (
(b) its market price on the date of th
whichever is lower,
(2) Where the property was acquired by thi
(a) its market price on the date of su cost of Improvements made to th
Instrument of Gift; or
(b) its market price on the date of thi
whichever is lower
LEASE or HIRE or AGREEMENT for Least
Rs. 1.000/- or part thereof of the aggregate re up to a maximum of 10 years
(a) CONTRACT for CONSTRUCTION W (not being construction of residential ho
- for every Rs. 1.00/- or part ther
(a) LETTER OR POWER OF ATTORNEY any one meeting or adjournment therec
(b) A POWER OF ATTORNEY whethere
for any other purpose
PARTNERSHIP INSTRUMENT

e value not exceeding Rs. 50,000/- .... 3.00
e value in excess of Rs. 50,000/- ... 2.00
ty for purposes of gifts shall be -
e Donor on or before 31.03.1977
ased by the cost of improvements late of the Instrument of Gift, or
e Instrument of Gift,
e Donor after 31.03.1977- .
ch acquisition increased by the
at property up to the date of the
2 Instrument of Gift,
2 or HIRE of any property for every
:nt or hire payable for the whole term
10.00
/ORK or for connected Service use) eof o a 1.00
* appointing a proxy to vote in f 0.50
xecuted in Sri Lanka or elsewhere
10.00
100.00
55

Page 266
18.
19.
20.
21.
22.
(2)
POLICY OF INSURANCE -
(a) Life Insurance - for every Rs. 1.000/- o
(b) Any other Insurance
PROMISSORY NOTE
(a) Where the amount is Rs. 10,000/- or les
(b) Where the amount exceeds Rs. 10,00/-
Rs. 1.000/- or part thereof
RECEPT or DISCHARGE
(a) given for any money or . ment Or
Traveller's Cheque for every Rs. 100/-
(b) given for money or other property amo
SHARE CERTIFICATES - on each Rs. 100/ script or stock to which the certificate relates
(1) TRANSFER (except Gift and Conveya Trustee to Beneficiary or by an Ordero
(a) of any IMMOVABLE PROPERTY
(i) for every Rs. 100/- or part thereof
not exceeding Rs. 100,000/-
(ii) for every Rs. 100/- or part thereo
in excess of Rs. 100,00/-
(b) (i) of any MOVABLE PROPERTY - for every Rs. 100/- or part there
(ii) of SHARES, SCRIPT-STOCK, I DEBENTURE STOCK - for eve thereof of the market value
TRANSFER or ASSIGNMENT
(a) of a BOND or MORTGAGE

r part thereof
for every
encashment of any or any part thereof
unting to Rs. 100/- or upwards
- of the face value of the shares,
nce by Executor, Administrator or f Court in matrimonial proceedings)
f of the value
f of the value
of of the value
DEBENTURES or ry Rs. 100/- or part
0.50
10.00
1.00
0.50
0.50
2.00
0.50
3.00
4.00
3.00
1.00
the same duty with which a Bond or
Mortgage is chargeable.
56

Page 267
(b)
(c)
(d)
(e)
(f)
(g)
(ii)
of a LEASE for consideration
of LEASE for consideration not wholly pecuniary or without consideration
of a JUDGEMENT DEBT whether with or without consideration
of a POLICY OF INSURANCE for a pecuniary consideration
(i) of a POLICY OF INSURANCE
for a consideration not wholly
pecuniary or without consideratio
(ii) of a POLICY OF INSURANCE a
Security for a loan
of a BUSINESS -
(i) for a considcration wholly pecunia
for a consideration not wholly pecuniary or without consideration

the same duty as on a conveyance of immovable property for such consideration.
the same duty as on a conveyance of immovable property for a consideration equal to the total rent payable for the unexpired period of the lease not exceeding l0 years.
the same duty as on a Bond or Mortgage for the amount due under thc decree
the same duty as on a conveyance of movable property for such consideration
the same duty as on a conveyance of a movable property fora consideration equal to the surrender value of such policy
0.00
(a) either thc duty on a conveyance of a immovable property for such consideration added to the amount including accrued interest due on mortgage debts charged on the immovable property of the business,
O
(b) the duly calcu, Jin accordance with
the fore-going paragraph as on a conveyance of all this assets of the business without any deductions for liabilities,
whichever is less
(a) either the duty on a conveyance of
immovable property for consideration

Page 268
23.
24
25
26
(3) TRANSFER or CONVEYANCE of a PROPERTY by way of TRUST
WARRANTTO ACTAS ANOTARY PUBI
An INSTRUMENT for the transfer, mortgage lease or charter or for the transfer or assignme mortgage lease or charter of any ship or aircr agreement or contract for effecting the same
Any INSTRUMENT NOT expressly charged the regulations or exempted from duty under Sec. 5 of the Stamp Duty Act.
CERTIFICATE OF DEPOSIT
(a) at the time of issue - for every Rs. 100/- part thereof of the amount of such certil
(b) at the time of encashment of any such c issued on or before l6.03.1989 - for eve Rs. 100/- or part thereof of the amount (
(c) at the time of encashment of any such cc issued on or after 17.03.1989 but before for every Rs. 100/- or part thereof oft
(i) Where maturity period does note
(ii) Where the maturity period exceec
25

equal to the next value of the business added to the amount including the accrued interest due on mortgage debt charged on the immovable property of
the business; or
(b) the duty calculated in accordance with the foregoing paragraph as on a conveyance of all the assets of the business without any deductions for
liabilities, whichever is less.
the same duty as on a conveyance ortransfer for a pecuniary consideration equal to the
value of the property
IC
's
nt of a ift or an
under
ΟΥ icate
ertificate
ry f such certificate
rtificate
16.11.1990 he amount of such certificate -
xceed one year
s one year
100.00
500.00
10.00
3.00
3.00
3.00
3.00

Page 269
(a) for every complete year c (b) for any remaining part of
Any duty charged at the time of issues the duty chargeable under this paragra
PART II : DOCUMENTS FIELD IN COURT
1. Every DOCUMENT filed in the SUPREME COURT OFAPPEAL, or HIGH COURT wl
admiralty jurisdiction -
(a) Where value does not exceeds Rs. 1 mi
Rs. 1,000/- or part thereof
(b) Where the value exceeds Rs. 1 million
2. Every DOCUMENT filed in the civil procee
DISTRICT COURT
(a) Where value does not exceed Rs. 1 mill
Rs. 1,000/- or part thereof
(b) Where the value exceeds Rs. 1 million
(only first 10 documents are liable to be
Note 1 : (a) The basis of the value for the purpose (i) the amount of the debt, deman
(ii) the value of the land which is t
(ii) Rs. 5,000/- in any other procee
(b) There are certain exemptions availab of a person claiming damages arisin;
Note 2 :Stamp Duty in court proceedings and on tr.
and Administrators in respect of immovable Province) are payable to the respective Prov

such period - - - - 3.00 uch period - - - 3.00
hall be deductible from h.
ROCEEDINGS
COURT,
en exercising
llion for every
2.00
... 2,000.00
dings in the
ion for every
1.00
1,000.00
> stamped)
of the Court Proceedings is :-
or damages claimed in the proceedings.
he subject matter of proceedings.
dings.
le (eg. document field in an action by or on behalf ; from death or damage caused by a motor vehicle.)
nsfers, gifts, exchanges, conveyances by Executors
properties in the Provinces (except the North-East incial Councils.

Page 270
CHA
DEFEN{
General :
In December 1991 the Government introduc imposed by Defence Levy Act No. 52 of 99 Levy (Amendment) Act No. 36 of 1992 and This chapter will deal with the main features
Chargeable Person.
This levy is payable by the following catego
(a) Every person who carries on the busin (b) Every importer
(c) Every person who carries on the busin
The terms 'manufacture', 'business', 'import these terms in the Turnover tax act No. 69 of
Definition of "Turnover' - Section 3.
3.1 "Turnover' is defined as having the sam
Accordingly the turnover
a) in the case of a manufacturer, is t
b) in the case ofa bank ora finance co excluding, in the case of a bank
transactions.
c) in thc case of an insurance compa
commissions,
d) in the case of an "importcr' is the the Turnover Tax Act, i.e. l l 0%
3.2 Exemptions.
"Turnover for the purpose of the levyi
a) The proceeds from the cxport by a

TER 2
DELEVY
2d a new levy called "Defence Levy'. The levy was l. This Act was subsequently amcnded by Defence by Defence Levy (Amendment) Act No. 62 of 1993. of the three Acts and how the levy is payable.
ies of persons:-
2ss of manufacture of any article.
ess of insurance, banking or finance.
2r and "banker has the same meaning as given to
98.
he meaning as in Section 5 of the Turnover Tax Act.
he turnover from articles manufactured by him,
mpany, is the interest, commissions and other charges, , receipts from F.C.B.U. operations and inter bank
hy, is the premia (excluding life insurance premia) and
value of imports as spccified in Section 5(1)(d)(l) of of (CIF + Customs duty).
s deemed not to include the following:-
ny person of any article manufactured by such person.
60

Page 271
b) The value of any article not being pla cxclusively for use in the manufactu
c) The proceeds from the sale of any ar
importing such article.
d) The proceeds from the sale of any a
i) The Commissioner General is sa in any bank in Sri Lanka in respe
evidence, that such article has i
ii) The receipt of the proceeds in f ccrtified by a bank in Sri Lanka
Imposition of the Levy - Section 3
(a) The operative period was originally fixcd to 31st December 1992. Later it was exte
(b) The levy is payable for every quarter of th
the turnover is below Rs 25,000 or not.
e.g. A is a manufacturer ofan article. His turn 31st March 1994 is Rs. 20,000. Defence L. is payable.
(c) Rate of Defence Levy.
(i) 1% of Turnover for the period l
(ii) 2.3% of Turnover for the period
(iii) 3% of Turnover for the period ls
(iv) 3.5% of turnover for the period
Payment of the Levy
Thc levy is payable in three instalments.
- on the turnovcrfor the first month of any q r on the turnover for the second month, or - on the turnover for the quarter, on or bef
that quarter after taking credit for thc ins
26

int, machinery or fixtures imported by such person re by such person of any article for export.
ticle manufactured outside Sri Lanka by the pcrson
rticle of any exporter, if
tisfied on the production of a letter of credit opened ct of the export of that article or other documentary
1 fact been exported from Sri Lanka; and
oreign exchange, from the export of that article is
to which such proceeds have been remitted.
only for the year 1992 (i.e.) from 1st January 1992 inded to cover 1993 & 1994.
le years 1992, 1993 & 1994 irrespective ofwhether
over for the three months from 1st January 1994 to evy at the rate of 3.5% on the turnover of Rs. 20.000
st January 1992 to 31st March, 1992
1st April, 1992 to 30th June, 1992
it July, 1992 to 31st December, 1993.
st January, 1994 to 31st December, 1994.
arter, on or before the 15thday of the second month.
or before the 15th day of the third month. ore the lišth day of the month following the end of
alments paid for the first and the second month.

Page 272
Credit for amounts collected by banks by wa these instalments - see paragraph 5.
Collection of the Levy by banks - Section:
Where any person makes an application for bank opening the letter of credit is required t Commissioner General an amount equal to o This procedure will be similar to the present applications for letter of credit. The bank is a invoice, specifying the amount so collected.
26

y of advance recoveries, may be claimed against
letter of credit for the import of any article, the o collect from that person and remit to the ne percentum of the value of the letter of credit. bank procedure to collect Stamp Duty on lso required to make an endorsement on the import

Page 273
3.
CHIAPT)
FOREIGN EXCHA
Introduction :
The Minister of Finance announced on Novembe granted. The legislation giving effect to this prop August, 1993 and is contained in Foreign Excha
Indemnity from certain Laws :
The amnesty provides indemnity from payment
(a) Income Tax or Surcharge on Income Taxf 31, 1992 on such parts of the PROFITS A
(i) foreign currency to his credit on Dec
(ii) amounts converted by him to Sri Lar
(iii) amount remitted out before Decembe
Controller of Exchange.
(b) Wealth Tax and surcharge on Wealth Tax
which profits and income representing rele
(c) Turnover Tax for any quarter ending on or of the Turnover from which profits and CURRENCY arose was derived.
The Amnesty also provides indemnity from person holding Relevant Foreign Currency
(a) Inland Revenue Act No. 28 of 1979; (b) Surcharge on Income Tax Act; (c) Finance Act No. 1 1 of 1963; (d) Turnover Tax Act No. 11 of 1963: (e) Exchange Control act.
What is relevant Foreign Currency?
The Relevant Foreign currency is defined to incl
263

R 3
GE AMNESTY
r 12, 1991 that a foreign exchange amnesty will be sal was passed by Parliament and certified on llth nge (Amnesty) Act No. 32 of 1993.
of:-
or any year of assessmentending or before March ND INCOME representing the aggregate of:-
ember 31, 1994;
ka Currency before December 31, 1994; and
r 31, 1994 with the written approval of the
on that part of the net wealth for the acquisition of vant foreign currency had been utilised.
bcfore December 31, 1991 in respect of such part
income representing RELEVANT FOREIGN
prosecution or to a penalty for any offences by any under :
ude

Page 274
.(a) Foreign Currency held on November 12,
(b) Foreign Currency into which any moveabl Sri Lanka on November 2, 1991 has be
(c) is attributable to profits and income accru
12, 1991 in respect of which
(i) no return has been furnished; (ii) has not been disclosed in any retur (iii) is chargeable with income tax.
(d) attributable to property acquired by him ou or otherwise in respect of which no retur
The definition of RELEVANT FOREIGN CU
(a) amount receivable from any exports und
(b) amount receivable in foreign currency for Lanka and declared in the return furnishc
(c) amount due in foreign currency on any de recovery of any debt or enforcement of a
PERSONS TO WHOM AMNESTY APPLY
Amnesty shall apply to a person
(a) Who holds any relevant Foreign Currenc
(b) Who remits through any commercial ban
before December 31, 1994,
(c) bring such currency through an approves
March 5, 1993 and makes a declaration
(d) deposits such money in designatcd forcis
commercial bank, opened in his name
MAINTENANCE OF SECRECY :
The officials of inland Revenue Department, a to preserve secrecy in relation to the relevant f than:
26.

1991 by a person outside Sri Lanka;
2 or immovable property held by such person outside in converted,
ed to such person for any period prior to November
furnished and
itside Sri Lanka by way of gift, donation, inheritance in has been made.
RRENCY exclude:
2r any permitissued by the Controller of Exchange,
scrvices rendcred by him in Sri Lanka or outside Sri d to Inland Revenue and Exchange Control;
crce or writin any court of law outside Sri Lanka for iny civil liability.
y outside Sri Lanka;
k such currency on or after November 12, 1991 and
port of entry after November 12, 1991 but before inder customs ordinance ܖ
gn currency in any foreign currency account in any
ny Commercial Bank or Central Bank are required oreign currency accounts of any persons other

Page 275
(a) the person to whom such matter or informa
(b) by any provision or any law giving effe or hijacking in any criminal proceedings ur
(c) by an Order of the Supreme Court in relatio
O
(d) by an Order of Court in any legal proceedin a commercial bank or holder of the accou account.

tion relates,
it to an international convention on narcotics der that law in any Court;
to Prevention of Terrorism Act No.48 of 1979,
gs in relation to the relevant foreign currency by nt relating to any transaction arising from such

Page 276
3 ܢܼܲ.