Inland Revenue act

Arrangement of Sections

1. Short title.

CHAPTER I

IMPOSITION OF INCOME TAX

2. Imposition of Income Tax.

CHAPTER II

INCOME CHARGEABLE WITH TAX

3. Income chargeable with tax.

4. Profits from employment.

5. Net annual value of land and improvements thereon or of any place of residence.

6. Profits or income arising from rents of land and improvement thereon.

7. Capital gain.

CHAPTER III

Exemption from Income Tax

8. Exemption from income tax of certain persons (other than individuals) on the whole or any part of their profits and income.

9. Exemption from Income Tax of certain profits and income of certain officers and employees.

10. Exemption from Income tax of certain interest received.

11. Exemption from income tax of certain interest.

12. Exemption from income tax of certain profit and income from lands and improvements thereon.

13. Exemption from income tax of certain subsidies.

14. Exemption from income tax of certain capital gains.

15. Miscellaneous exemptions from income tax.

16. Exemption of certain profits and income of any resident guest.

16A. Exemption of profits and income derived from outside Sri Lanka.

17. Exemption from income tax for five years of the profits and income of certain companies.

17A. Exemption from income tax of profits and income from agricultural undertakings.

18. Exemption from income tax of the profits and income of any undertaking which provides certain services.

18A. Exemption from income tax of the profits and income of certain companies providing infrastructure facilities.

19. Exemption from income tax of the profits and income of any company engaged in non plantation agricultural activities.

20. Exemption from income tax of profits and income of a company which exports fresh or processed vegetables or fruits and cultivates vegetables or fruits.

20A. Exemption from income tax of profits and income of an undertaking for export of handicrafts.

21. Exemption from income tax of profits from the construction and first sale of certain houses.

21A. Exemption from income tax of the profits and income of any company from any specified undertaking.

21B. Exemption from income tax of certain undertakings for infrastructure development.

21C. Exemption from income tax of small scale infrastructure industries.

21D. Exemption from income tax of any company engaged in research and development.

21E. Exception from income tax of any company acquiring non-performing business enterprise.

21F. Exemption from income tax of any company engaged in non-traditional products for exports which undertakes expansion.

21G. Exemption from income tax of profits and income from expansion of undertakings engaged in the manufacture or production of traditional exports or non-exportable goods.

21H. Exemption from income tax of any venture capital company.

21I. Exemption from income tax of any person engaged in the business of providing Manor Houses or Thematic Bungalows to tourists.

22. Power of Commissioner-General to recommend cancellation of approval granted under section 17.

22A. The profits and income of a person making a declaration under section 2 of the Inland Revenue (Special Provisions) Act, No. 7 of 2002 shall not be exempted from income tax.

CHAPTER IV

Ascertainment of Profits or Income

23. Ascertainment of profits or income.

24. Deductions not allowed in ascertaining profits and income.

24A. Deduction of head office expenses incurred by any non-resident company.

CHAPTER V

Ascertainment of Total Statutory Income

25. Basis for computing statutory income.

26. Appointment of profits.

27. Total statutory income.

28. Aggregation of the total statutory income of a child with that of his parent.

CHAPTER VI

Ascertainment of Assessable Income

29. Deductions from total statutory income in arriving at assessable income.

CHAPTER VII

Ascertainment of Taxable Income

30. Taxable income.

31. An allowance in respect of qualifying payments.

CHAPTER VIII

Rates of Income Tax on Persons other than Companies

32. Rates of income tax on persons other than companies.

CHAPTER IX

Special Provisions Relating to the Taxation of Certain-Profits and of Dividends of
Such Prompts

33. Special provision relating to taxation of interest on compensation payable in respect of property vested in the Government, the Land Reform commission or a public corporation or a local authority.

34. Deductions of income tax from interest payable on certain deposit accounts.

35. Rate of income tax on gross interest on loans granted by a company, partnership or other body of Sri Lanka.

36. The rate of income tax on royalty payable to any company partnership or other body of persons outside Sri Lanka.

37. The rate of income tax on profits from employment for a specified period of a non citizen employed in Sri Lanka.

38. Rate of income tax on the profits and income of any foreign currency banking unit.

38A. Rate of income tax on profits and income of any foreign currency banking unit arising from any off-shore foreign transaction.

38B. Rate of income tax on profits and income arising in Sri Lanka to the consignor or consignee from certain exports.

38C. Rate of income on profits and income arising from certain undertakings approved by Minister.

38D. Rate of income tax on sale of any share or a warrant.

39. Rate of income tax on profit from certain undertakings earned on by a person other than a company.

40. Rate of income tax on profits from certain undertakings carried on by a company.

40A. Rate of income tax applicable to specialised housing banks.

40B. Rate of income tax applicable to certain companies after the expiry of tax exemption.

41. Rate of income tax on dividends paid out of profits taxed in accordance with section 40.

42. Deduction from tax payable by any quoted public company under certain conditions.

43. Deduction from tax payable by any company which obtain a quotation of its shares and satisfies certain further conditions.

44. Rate of income tax on qualified export profits and income of person not being a company, who commenced to carry on any specified undertaking.

45. Rate of income tax an qualified export profits and income of a company which commences to carry on any specified undertaking.

46. Rate of income tax on qualified export profits and income of a person not being a company who specified undertaking.

47. Rate of income tax on qualified export profits and income of a company which carries on any specified undertaking.

48. Rate of income tax on dividends out of exports profits and income.

48A. Rate of income tax on certain dividends.

48B. Rate of income tax on dividend from outside Sri Lanka.

49. Rate of income tax on deemed exports of any person or partnership.

50. Rate of income tax on profits and income from service rendered outside Sri Lanka by any resident company or partnership.

51. Rate of income tax on employment and fees earned in foreign currency by an individual or by partnership.

52. Interpretation.

52A. Payment of income tax on taxable income by an individual whose employment income is exempt under paragraph (a) or (b) of subsection (1) of section 9.

CHAPTER X

COMPANIES

53. Income tax to which any resident company is liable.

54. Advance company tax on qualifying distribution to which resident companies are liable.

55. Dividend consisting of any qualifying distribution when received by a resident person other than a company.

56. Resident company to maintain a record of dividends received.

57. Income tax to which any non-resident company is liable.

58. Certain dividends not to form part of the assessable income of the receiving company.

59. Profits of a company from transactions with its shareholders.

60. Every resident company to deduct income tax from any dividend received from any quoted public company and payable to any non-resident person.

61. Resident company entitled to deduct tax from any dividend.

62. Certain undistributed profits to be treated as distributed.

63. Provisions applicable where the profits and income of a company are appropriated by the director of that company.

63A. Provisions of this Chapter not apply to charitable institutions etc.

CHAPTER XI

SPECIAL CASES

A–CHILDREN

64. Assessment of child’s income.

B–RECEIVER, TRUSTEE, EXECUTOR

65. Returns to be furnished by receiver and trustee and their liability to tax.

66. Chargeability to tax of trustee of an incapacited person.

67. Liability of executor to tax payable by deceased person.

68. Return to be furnished by executor and changeability of an executor and beneficiary.

69. Joint trustees and executors.

C–UNIT TRUSTS

Every Unit Trust Deemed to be a Company.

70. Every Unit Trust Deemed to be a Company.

D–PARTNERSHIPS

71. Assessment of partnership income.

72. Assessment to be made in the name of the partnership in certain circumstances.

72A. Tax chargeable on partnerships.

E–RESIDENCE

73. What constitutes residence.

F–LIABILITY OF NON-RESIDENT PERSONS

74. Chargeability of certain profits of non-resident persons.

75. Persons assessable on behalf of a non-resident person.

76. Liability of certain non-resident persons.

77. Profits of certain business to be computed by a percentage of the turnover.

78. Profits of non-resident person from sale of exported produce.

79. Liability to income tax of certain profits on non-resident person.

80. Exemption from income tax of non-resident persons in certain cases and liability of certain non-resident persons to income tax at reduced rates.

G–SHIPPING AND OPERATION OF AIRCRAFT

81. Profits of non-resident ship owners or charterers.

82. Master of ship to be an agent.

83. Refusal for clearance for ship where income tax is in arrears.

84. Profit of non-resident owners or charterers of aircraft.

85. Application of subsection (2) of section 81, section 82, and section 83 to profits of non-resident owners or charterers of any aircraft.

H–INSURANCE

86. Ascertainment of profits of insurance companies.

87. Ascertainment or profits of the Insurance Corporation of Sri Lanka from the business of life insurance.

88. Interest on certain loans deemed to be profits and income.

89. Certain royalties deemed to be profits and income.

90. Deduction of income tax from interest payable to persons outside Sri Lanka.

91. Deduction of income tax from payment made to any foreign entertainer or artist.

J–RELIEF IN CASES OF DOUBLE TAXATION

92. Effect of agreements for double taxation relief.

93. Relief in respect of Sri Lanka income tax.

K–MISCELLANEOUS

94. Applicability of provisions relating to particular sources of profits or income.

95. How certain receipts of insurance are to be treated.

96. Ascertainment of income of clubs, trade, associations.

96A. Profits and income of Non Government Organisation to be chargeable with income tax.

97. Certain transactions and dispositions to be disregarded.

97A. Assessors power to disregard certain transactions between the member of a group of companies.

L–PETROLEUM EXPLORATION AND EXPLOITATION

97B. Ascertainment of profits and income from business of petroleum exploitation under a Petroleum Resources agreement.

98. Returns and information to be furnished.

99. Audit reports to be furnished by partners.

100. Returns and other documents to contain the national identity card number or passport number.

101. Returns to be furnished of income received on account of or paid to other persons.

102. Occupiers to furnish returns of rent payable.

103. Return of lodgers and inmates.

104. Power of Commissioner-General to impose penalty for furnish return.

CHAPTER XIII

PAYMENT OF TAX BY SELF-ASSESSMENT

105. Payment of tax by self-assessment.

CHAPTER XIV

DEDUCTION OR INCOME TAX FROM REMUNERATION OF EMPLOYFES BY EMPLOYERS

106. Employees to deduct income tax.

107. Employers to give notice to Commissioner-General.

108. Application of income tax tables.

108A. Deduction of tax at special rates.

109. Directions to employers.

110. Employers to maintain proper records.

111. Duties of employee following deductions from Income Tax.

112. Adjustments of amount of income tax not paid or paid in excess.

113. Employee to give notice when necessary deductions are not made.

114. Income tax deducted not to form part of assest of employers.

115. Defaults in the deduction or payments of income tax.

116. Issue of Assessments on employers.

117. Appeals.

118. Penalty on default.

118A. Penalty for default.

119. Credit for tax paid.

120. Compliance with the provisions of this Chapter relating to forms.

121. Interpretation.

CHAPTER XIVA

Provisions Relating to the Payment of Income Tax by a Government Institution

121A. Payment of income tax by a Government institution for its employees.

CHAPTER XV

Deduction of Income Tax from Interest Paid by Banks and Financial Institutions

122. Bank and financial institution to deduct income tax.

122A. Bank or financial institution to deduct income tax on interest paid.

122B. A company which issues corporate debt security to deduct income tax on interest.

123. Credit for tax deduction.

123A. A national tax credit on secondary market transaction.

123B. Refund of income tax paid on interest liable to withholding tax.

124. Issue of direction.

124A. Issue of directions where deductions are made under section 122A or 122B.

124B. Issue of direction where deduction are made from interest income under section 122A or 122B.

125. Duties of bank and financial institution following deductions of income tax.

125A. Penalty for tax avoidance.

126. Default in the deduction of income tax.

127. Issue of assessment on bank and financial institution.

128. Appeals.

129. Penalty for default.

129A. Penalty and interest on default.

130. Interpretation.

130A. Person or partnership chargeable with income tax.

130B. Registered co-operative societies deemed to be companies.

130C. Registration of banks and financial institutions.

130D. Registration of specified persons.

130E. Registration of persons liable to deduct tax from rent, lease rent or other similar payments.

CHAPTER XVI

DEDUCTION OF INCOME TAX FROM SPECIFIED FEES PAID BY SPECIFIED PERSONS

131. Specified persons to deduct income from specified fees.

CHAPTER XVIA

Deduction of Income Tax from Rent, Lease Rent or other Payment Paid by any Person or Partnership for the use or Occupation of any Land or Building other than for Residential Purposes

131A. Persons paying rent lease rent etc. to deduct income tax.

131B. Application of the provisions of Chapter XV to this Chapter.

132. Provisions of Chapter XV to apply in relation to the deduction under this Chapter of income tax from specified fees.

CHAPTER XVIB

Deduction of Income Tax from Reward Payments Made by any Government Institution to Informants and others and Shares of Fines Paid to Any Person and Lottery Prizes, Winnings from Gambling or Winnings from Betting, Paid by any Person or Partnership

132A. Government institutions paying rewards or fines or other person or partnership paying lottery prizes act to deduct income tax.

132B. Provisions of chapter XV to apply in relation to the deduction under this Chapter.

132C. Registration of person conducting lotteries or betting or gambling activities.

CHAPTER XVIC

Deduction of Income Tax From any Annuity or Royalty Paid or Any Management Fee Paid or Similar Payment Made by any Person or Partnership

132D. Persons paying royalty, management fee or similar payment to deduct income tax.

132E. Application of the provisions of chapter XV to this Chapter.

CHAPTER XVII

Retention of Moneys in Certain Provident Funds

133. Retention of fifteen per centum of moneys lying to the credit of a contributor to a specified provident fund to meet any tax payable.

CHAPTER XVIII

Assessments

134. Assessment and additional assessments.

135. Notice of assessment.

CHAPTER XIX

APPEALS

A–Appeals to the Commissioner-General

136. Appeals to the Commissioner-General.

B–Appeals to the Board of Review

137. Constitution of the Board of Review.

138. Appeals to the Board of Review.

139. Commissioner-General may refer appeals to the Board of Review.

140. Hearing and determination of appeals by the Board of Review.

C–APPEALS TO THE COURT OF APPEAL

141. Appeal on a question of law to the Court of Appeal.

CHAPTER XX

Finality of Assessments and Penalty for Incorrect Returns

142. Assessment or amended assessments to be final.

143. Penalty for incorrect return.

CHAPTER XXI

Tax in Default and Sums Added Thereto

144. Tax in default and sums added thereto.

144A. Repealed.

144B. Punishment for tax default.

CHAPTER XXII

Recovery of Tax

145. Tax to include fines.

146. Tax to be a first charge.

147. Notice to defaulter.

148. Recovery of tax by seizure and sale.

149. Proceedings for recovery before Magistrate.

150. Recovery of tax out of debts.

151. Transfer of immovable property to Government in lieu of payment of tax in cash.

152. Tax in default to be recovered from remuneration of employee.

153. Tax in default of partner to be recovered from the assest of a partnership.

154. Recovery of income tax from the income of a child.

155. Recovery of income tax payable by a beneficiary from the trustee.

156. Recovery of income tax payable by a beneficiary from the executor.

157. Gift tax to be recovered from the donee in certain circumstances.

158. Recovery of tax from persons leaving Sri Lanka.

159. Use of more than one means of recovery.

160. Power of Commissioner-General to obtain information for the recovery of tax.

161. Liabilities of directors of private company in liquidation.

162. Delegation of Commissioner-General’s powers and functions.

162A. Action not to commence after expiry of five years in certain circumstances.

CHAPTER XXIII

Miscellaneous

163. Signature and service of notice.

164. Validity of notice assessment.

165. Precedent partner to act on behalf of a partnership.

166. Principal officer to act on behalf of company or body of persons.

167. Who may act for incapacitated or non-resident person.

168. Indemnification of representative.

CHAPTER XXIV

Repayment

169. Tax paid in excess to be refunded.

170. Interest payable on the amount of a refund in certain circumstances.

CHAPTER XXV

Penalties and Offences

171. Penalties for failure to make returns making incorrect returns.

172. Breach of secrecy and other matters to be offences.

173. Penal provisions relating to fraud.

174. Tax to be payable notwithstanding any prosecution or conviction for an offence under this Act.

175. Prosecutions to be with the sanction of the Commissioner-General.

176. Admissibility of statement and documents in evidence.

CHAPTER XXVI

Administration

177. Officers.

178. Official secrecy.

179. Inland Revenue Incentive Fund.

180. Commissioner-General may pay rewards to information.

CHAPTER XXVII

General

181. Regulation.

182. Forms.

183. Power to search buildings or places.

184. Power to search business premises.

CHAPTER XXVIII

Interpretation

185. Sinhala text to prevail in case of inconsistency.

186. Interpretation.

CHAPTER XXIX

Application or the Inland Revenue Act, No. 28 Of 1979

187. Application of the Inland Revenue Act, No. 28 of 1979.

SCHEDULES

657-2-1991,

448-13-1987,

1346-2-2004,

789-10,

1187-16-2001,

464-4-1987,

571-16-1989,

1028-21,

958-10-1997,

1116-6,

881-7,

1101-22,

1101-23,

57-11-1979,

1298-8-2003.

4 of 1963,

11 of 1963,

26 of 1968,

6 of 1969,

31 of 1971,

33 of 1971,

17 of 1972,

1 of 1974,

15 of 1974,

18 of 1975,

19 of 1975,

16 of 1976,

30 of 1978,

28 of 1979,

24 of 1980,

40 of 1981,

27 of 1982,

43 of 1983,

53 of 1983,

14 of 1984,

16 of 1985,

56 of 1985,

27 of 1986,

8 of 1987,

8 of 1988,

31 of 1988,

11 of 1989,

42 of 1990,

22 of 1990,

49 of 1991,

63 of 1992,

35 of 1993,

21 of 1994,

27 of 1995,

16 of 1996,

24 of 1997,

52 of 1998,

41 of 1999,

38 of 2000,

8 of 2001,

10 of 2002,

7 of 2002,

10 of 2003,

19 of 2003,

31 of 2003,

37 of 2003,

10 of 2004,

12 of 2004,

8 of 2005,

10 of 2006.

AN ACT to provide for the imposition of income tax for any year of assessment commencing on or after April 1, 2000.

[Date of Commencement: 1st April, 2000]

1. Short title.

This Act may be cited as the Inland Revenue Act.

CHAPTER I

IMPOSITION OF INCOME TAX

2. Imposition of Income Tax.

(1) Income tax shall, subject to the provisions of this Act, be charged at the appropriate rates specified in the First, Second, Third, Fourth, Fifth and Sixth Schedules to this Act, for every year of assessment commencing on or after April 1, 2000, in respect of the profits and income of every person for that year of assessment—

(a) wherever arising, in the case of a person who is resident in Sri Lanka in that year of assessment; and

(b) arising in, or derived from, Sri Lanka in the case of every other person.

[S 2(1) am by s 2 of Act 37 of 2003.]

(2) For the purposes of this Act, “profits and income arising in, or derived from, Sri Lanka” includes all profits and income derived from services rendered in Sri Lanka or from property in Sri Lanka, or from business transacted in Sri Lanka, whether directly or through an agent.

CHAPTER II

INCOME CHARGEABLE WITH TAX

3. Income chargeable with tax.

For the purpose of this Act, “profits and income” or “profits” or “income” means—

(a) the profits from any trade, business, profession or vocation for however short a period carried on or exercised;

(b) the profits from any employment;

(c) the net annual value of any land and improvements thereon occupied by or on behalf of the owner in so far as it is not so occupied for the purposes of a trade, business profession or vocation;

(d) the net annual value of any land and improvements thereon used rent-free by the occupier if such net annual value is not taken into account in ascertaining profits and income under paragraphs (a), (b) or (c) of this section, or where the rent paid for such land and improvements is less than the net annual value, the excess of such net annual value over the rent, to be deemed in each case the income of the occupier;

(e) dividends, interest or discounts;

(f) charges or annuities;

(g) rents, royalties or premiums;

(h) capital gains arising on or before March 31, 2002;

[S 3(h) subs by s 2 of Act 10 of 2002; am by s 2(1) of Act 12 of 2004.]

(hh) winnings from a lottery, betting or gambling; and

[S 3(hh) ins by s 2(2) of Act 12 of 2004; am by s 2(1) of Act 8 of 2005.]

(hhh) in the case of a non-governmental organisation, any sum received by such organisation by way of grants, donations or contributions or any other manner on or after April 1,2005; and

[S 3(hhh) ins by s 2(2) of Act 8 of 2005.]

(i) income from any other source whatsoever, not including profits of a casual and non-recurring nature.

4. Profits from employment.

(1) Profits from any employment include—

(a) —

(i) any wages, salary, allowance, leave pay fee. pension, commission, bonus, gratuity, perquisite or such other payment in money which an employee receives in the course of his employment;

(ii) the value of any benefits to the employee or to his spouse, child or parent including the value of any holiday warrant or passage;

(iii) any payment to any other person for the benefit of the employee or of his spouse child or parent,

whether received or derived from the employer or others.

(b) the value of any conveyance granted free of any charge by an employer to any employee, of any sum so granted for the purchase of any conveyance,

(c) —

(i) any retiring gratuity or any sum received in commutation of pension,

(ii) any sum paid from a provident fund approved by the Commissioner-General to any employee at the time of his retirement, other than such part of that sum as represents his contributions to that fund,

(iii) any sum paid from a regulated provident fund to an employee other than

(A) such part of that sum as represents his contributions to that fund, and

(B) such part of that sum as represents the contributions made by the employer to that fund prior to April 1, 1968 and the interest which accrued on such contributions, if tax at the rate of fifteen per centum has been paid by such employee in respect of such contributions and interest.

(iv) any sum received as compensation for loss of any office or employment,

(v) any sum paid from the Employees’ Trust Fund established by the Employees’ Trust Fund Act, No. 46 of 1980.

(d) the rental value of any place of residence provided rent-free by the employer or where a place of residence is provided by an employer at a rent less than the rental value, the excess of the rental value over such rent.

For the purposes of this paragraph the rental value of any place of residence shall be—

(i) the net annual value as defined in section 5 with the addition of the rates paid by the owner and of thirty three and one-third per centum of such net annual value on account of repairs and other expenses; or

(ii) the gross rent paid for such place of residence, whichever is higher:

Provided that—

(a) on or before March 31, 2005, any excess of the rental value over one hundred and twenty thousand rupees, where the aggregate of the profits referred to in paragraph (a), does not exceed one hundred and fifty thousand rupees; and

(b) for any year of assessment commencing on or after April 1, 2005, any excess of the rental value over one hundred and eighty thousand rupees, where the aggregate of the profits referred to in paragraph (a), exceeds one hundred and fifty thousand rupees,

shall be disregarded; and

[S 4(d) proviso subs by s 3(1) of Act 8 of 2005.]

(e) the value at the time of its disposal, of any share of a company, received as a benefit, from the employer or on behalf of the employer at no cost or at a price which is less than the prevailing market value of such share of a company whether directly or through a share option scheme;

The value at the time of its disposal of such share shall be the surplus over the cost of acquisition of such share—

(i) in the case of a sale, the sale price or the market value, of such share as at the date of sale, whichever is higher;

(ii) in the case of a disposal, otherwise than by way of sale, the market value of such share as at the date of disposal;

(iii) in the case of an employee ceasing to be in the employment of such employer, without selling or disposing of such share, the market value as at the last date of his employment with such employer which date shall be deemed to be the date of the disposal of such share:

Provided however, in the event of the death of such employee during his period of employment with such employer the value of such share shall be zero.

For the purpose of this paragraph the profits from employment arising in accordance with the preceding provisions shall be charged with income tax in the year of assessment during which such sale, disposal or cessation of employment took place, on the basis that such profits from the sole taxable income within the meaning of Chapter VII for that year of assessment and such tax shall be recovered in accordance with the provisions of Chapter XIV of this Act:

[S 4(e) proviso am by s 3(2) of Act 8 of 2005.]

Provided further, that where the employer was not instrumental in the disposal of such share such employee shall pay the tax due on such profit from employment in accordance with the provisions of Chapter XIII of this Act.

[S 4(e) ins by s 3(2) of Act 37 of 2003.]

(2) For the purposes of this section, “the value of any benefit”, in relation to an individual who has received, or derived such benefit, means

(a) where the market value of such benefit can be readily ascertained, such market value; or

(b) where the market value of such benefit cannot be readily ascertained, or such benefit has no market value, the cost that would have to be incurred by any other individual to obtain such benefit:

Provided that the Commissioner-General may, having regard to the market value of that benefit or the cost that would have to be incurred by any other individual to obtain that benefit, by Order published in the Gazette, specify the value to be placed on any benefit and where a value is so specified in respect of a benefit, such value shall be deemed to be the value of such benefit.

5. Net annual value of land and improvements thereon or of any place of residence.

(1) The net annul value of land and improvements thereon or of any place of residence shall be determined on the basis of the rent which a tenant might reasonably be expected taking one year with another to pay for such land and improvements or for such place of residence (the tenant paying rates and the owner bearing the cost of repairs) subject to a deduction of twenty five per centum on account of repairs and other expanses.

(2) Where the annual value of any land and improvements thereon or of any plate of residence has been assessed for rating purposes by a local authority, such annual value, less a deduction of twenty five per centum on account of repairs and other expenses shall be the net annual value unless in the opinion of the Commissioner-General the assessment made by the local authority does not accurately represent the annual value of such land and improvements or place of residence in the year for which the net annual value is being determined.

6. Profits or income arising from rents of land and improvement thereon.

The profits or income arising from rents of land and improvements thereon shall be the gross rent which is receivable and can be recovered after deducting therefrom rates borne by the owner and, where the owner undertakes to bear the cost of repairs, twenty-five per centum of the balance, but shall, where the rent recoverable in respect of such land and improvements is not restricted by any taw for the time being in force, be not less than the net annual value after deducting therefrom any part thereof which is the income of the occupier within the meaning of paragraph (d) of section 3 due provision being made for any period in respect of which no rent is receivable or can be recovered.

7. Capital gain.

(1) “Capital gain” means the profits or income, not being profits or income within the meaning of paragraph (a), (g) or (i)
of section 3, arising on or before March 31, 2002 from—

[S 7(1) am by s 3 of Act 10 of 2002.]

(a) the change of ownership of any property occurring in any manner whatsoever;

(b) the surrender or relinquishment of any right in any property;

(c) the transfer of some of the rights in any property,

(d) the redemption of any share, debenture or other obligation,

(e) the formation of a company,

(f) the dissolution of a business of the liquidation of a company,

(g) the amalgamation or merger of two or more businesses or companies, or

(h) any transaction in connection with the promotion of which any person who is not a party to such transaction receives a commission or reward.

(2) For the purposes of subsection (1) and in relation to the capital gain of any person, the profits and income arising from

(a) a change of ownership of property, means, subject to the provisions of subsection (4), the amount by which the value of the property at the time when such change of ownership occurs exceeds its value at the time when it was acquired by that person;

(b) the surrender or relinquishment of any right or the transfer of some of the rights in any property means subject to the provisions of subsection (4) the value of the consideration for such surrender, relinquishment or transfer;

(c) the redemption of any share, debenture or other obligation means subject to the provisions of subsection (4) the value of all property received by him in consequence of such redemption less the value, of that which is redeemed at the time when it was acquired by him or where that which is redeemed is any property referred to in paragraph (e) or paragraph (f) or paragraph (g) or paragraph (h) of subsection (3), less such value of that property as is specified in that paragraph;

(d) the formation of a company, means, subject to the provisions of subsection (4), the value of the consideration received by him for any transaction in connection with the formation of such company;

(e) the dissolution of a business or the liquidation of a company, means, subject to the provisions of subsection (4), the amount by which the value of all properly received by him in consequence of such dissolution or liquidation exceeds the value of his share of the capital of such business or company at the time when such share was acquired by him;

(f) the amalgamation or merger of two or more companies, means, where such person was a shareholder of any of those companies, any money received by such shareholder in consequence of such amalgamation or merger, and where such person was not a shareholder of any of those companies, the value of the consideration received by him for any transaction in connection with such amalgamation or merger; and

(g) the promotion of a transaction to which such person was not a party, means, the commission or reward received by him in connection with such promotion.

(3) “Value”, with reference to any property or consideration in the context of the definition of “capital gain” and in relation to any person to whom the capital gain arises, shall be as follows—

(a) where, the property was acquired before April 1, 1977, by the person to whom such gain arises then, subject to the provisions of paragraph (c), paragraph (d), paragraph (e), paragraph (f), paragraph (g) and paragraph (h), the value of the property at the time when it was acquired by such person shall be an amount equal to the market value of the property on April 1, 1977;

(b) where the property was acquired on or after April 1, 1977, by the person to whom such gain arises then,
subject to the provisions of paragraph (c), paragraph (d),
paragraph (e), paragraph (f), paragraph (g), paragraph (h),
paragraph (l) and paragraph (m), the value of the property at the time it was acquired by such person shall if such acquisition was

(i) by purchase, be an amount equal to the cost of such purchase; and

(ii) otherwise than by purchase, be an amount equal to the market value of the property at the time of such acquisition;

(c) where the property was acquired by the person to whom such gain arises in his capacity beneficiary under a trust or the testate or intestate heir of the deceased, in consequence of a transfer by the trustee of such trust or by the executor appointed to administer the estate of such deceased, the value of the property at the time of such acquisition shall if the date of the acquisition of such property by such trustee or executor is

(i) before April 1, 1977, be an amount equal to the market value, of the property on April 1, 1977; and

(ii) on or after April 1, 1977, be an amount equal to the market value of the property at the time when such trustee or executor came into possession of the property;

(d) where the person to whom the gain arises had come into
possession of the property immediately after the cessation
of a life interest of any other person in the property or after the cessation of the rights of fiduciary in that property, the value of the property at the time when the first-mentioned person acquired such property shall if the date of the cessation of such life interest or such rights of a fiduciary is—

(i) before April 1, 1977 be an amount equal to the market value of the property on April 1, 1977; and

(ii) on or after April 1, 1977 be an amount equal to the market value of the property on such date;

(e) where the property is a bonus share, issued on or after April 1, 1977 to the person to whom such gain arises, value of the property at the time when it was acquired by such person shall be deemed to be nil;

(f) where the, property is a share, issued on or after April 1, 1977 to the person to whom such gain arises at a price less than the market value of such share, the value of the property at the time when it was acquired by such person shall be an amount equal to the cost of acquisition of such property;

(g) where the property consists of any shares received by the person whom such gain arises in lieu of shares held by him in any of two or more companies which have amalgamated or merged or after April 1, 1977 the value of the property at the time when it was so received shall if the last mentioned shares were acquired by him

(i) before April 1, 1977, be an amount equal to the market value of the last mentioned shares on April;

(ii) on or after April 1, 1977, be an amount equal to the cost of purchase of such shares as acquired by purchase and the market value of on acquisition of such shares as were acquired by him otherwise than by purchase

(h) where the property consists of shares in respect of which there has been a return or distribution of capital, the value of the property at the time when such shares were acquired shall if such shares were acquired by the person to whom such gain arises

(i) before April 1, 1977, be an amount equal to the market value of the shares on April 1, 1977, less the amount of the capital returned or distributed, or after that date, if the amount of the capital returned or distributed is not a dividend within the meaning of this Act, and

(ii) on or after April 1, 1977 be an amount equal to the cost of purchase of such shares as were acquired by purchase and the market value on the date of acquisition of such sales as were acquired by him otherwise than by purchase less the amount of the capital returned of distributed if the amount of the capital returned or distributed is not a dividend within the meaning of this Act.

(i) the value of the property at the time of the occurrence of the transaction which resulted in such gain shall if such transaction is

(i) a sale of the property, be an amount equal to the sale price of such property;

(ii) other than a sale, be an amount equal to the market value of such property at the time of the occurrence of the transaction;

(j) the value of any consideration received by the person to whom such gain arises shall, where the consideration is—

(i) partly cash and partly property other than cash, be an amount equal to the aggregate of such cash and the market value of such property on the date on which the consideration was received; and

(ii) wholly property other than cash, be an amount equal to the market value of such property on the date on which the consideration was received;

(k) where, in the case of a change of ownership of the property of any person occurring by sale, the Assessor is of the opinion that the sale price is less than the market value of that property at the time of the sale, then unless such person satisfies the Assessor that there was reasonable cause for the difference between the sale price and such market value, the value of such property at the time of the sale shall be an amount equal to the market value of that property at that time;

(l) where, the property, is immovable property and that property was acquired by way of gift or inheritance, on or after April 1, 1977 by the person to whom the capita! gain arises from any person who had acquired such property prior to April 1, 1977 the value of such property at the time it was acquired by the first mentioned person shall be an amount equal to the market value of such property on April 1, 1977 increased by the cost of any improvements additions or alterations to that property made by the second mentioned person after April 1, 1977; and

(m) where the property is immovable property and that property was acquired by way of gift or inheritance on or after April 1, 1977 by the person to whom such gain arises from any person who had acquired such property on or after April 1, 1977 the value of such property at the time when it was acquired by the mentioned person shall if the second mentioned person had acquired that property—

(i) by purchase, be an amount equal to the cost of such purchase; and

(ii) otherwise than by purchase, be an amount equal to the market value of the property at the time of such acquisition.

Increased by the cost of any improvements, additions or alterations to that property made by the second-mentioned person after it was acquired by him.

(4) For the purposes of subsection (2), the amount of a capital gain shall be computed after making the following deductions—

(a) any expenditure (oilier than the purchase price if any) incurred on or after April 1, 1977, solely in connection with the acquisition of the property by the person who is the owner of that property immediately before the occurrence of the transaction which resulted in such gain;

(b) any expenditure incurred on after April 1, 1977, by such owner in making any improvements, additions or alterations to that property if no deduction in respect of such expenditure is or has been allowed under section 23 of this Act or under section 23 or paragraph (1) of subsection (2) of section 31 of the Inland Revenue Act, No. 28 of 1979;

(c) any expenditure incurred by such owner solely in connection with the transaction which resulted in such gain.

CHAPTER III

Exemption from Income Tax

8. Exemption from income tax of certain persons (other than individuals) on the whole or any part of their profits and income.

There shall be exempt from income tax

(a) the profits and income of—

(i) the Incorporated Council of Legal Education established by Council of Legal Education Act;

(ii) the Institute of Chartered Accountants of Sri Lanka established by the Institute of Chartered Accountants
of Sri Lanka Act, No. 23 of 1959;

(iii) the Sri Lanka Tea Board established by the Sri Lanka Tea Board Law, No. 14 of 1975;

(iv) the Ceylon National Library Services Board established by the Ceylon National Library Services Board Act, No. 17 of 1970;

(v) any University which is established or deemed to be established under the Universities Act, No. 16 of 1978;

(vi) the Coconut Development Authority, the Coconut Research Board and the Coconut Cultivation Board, established by or under the Coconut Development Act, No. 46 of 1971;

(vii) the Widows and Orphans’ Pension Fund of public officers of Sri Lanka;

(viii) any Widows’ and Orphans’ Pension Fund or Scheme established lot the Local Government Service;

(ix) the World Tourism Organisation;

(x) any institution or trust of a public character established by any written law solely for the purposes of scientific research;

(xi) the United Nations Organisation including the net annual value of any land and improvements thereon in Sri Lanka owned by and occupied by or on behalf of the Organisation;

(xii) the S W R D Bandaranaike National Memorial Foundation established by the S W R D Bandaranaike National Memorial Foundation Law, No. 2 of 1975;

(xiii) the National Science Foundation established by the Science and Technology Development Act, No. 11 of 1994;

(xiv) the Industrial Technology Institute established by the Science and Technology Development Act, No. 11 of 1994;

(xv) the International Development Association;

(xvi) the Sri Lanka Standards institution established by the Sri Lanka Standards Institution Act, No. 60 of 1984;

(xvii) the Asian Development Bank;

(xviii) any Resort Authority constituted under subsection (1) of section 57 of the Tourist Development Act, No. 14 of 1968;

(xix) the Ceylon Tourist Board established by the Ceylon Tourist Board Act, No. 10 of 1966;

(xx) the International Finance Corporation;

(xxi) the International Bank for Reconstruction and Development or any other international or foreign organisation approved by the Minister, being profits and income attributable to the interest and other charges on any loan granted to the Development Finance Corporation;

(xxii) the Monetary Board established by the Monetary Law Act being the profits and income of the Central Bank of Sri Lanka;

(xxiii) any registered society within the meaning of the Co-operative Societies Law, No. 5 of 1972, the majority of the members of which are resident in Sri Lanka being profits and income of that society arising out of any business specified by the Minister by notice published in the Gazette having regard to Government policy in relation to the Co-operative movement. For the purpose of ascertaining the membership of a registered society of which another registered society is a member, each of the members of the second-mentioned society shall be deemed to be a member of the first-mentioned society;

(xxiv) the Sri Lanka Foundation Institute established by the Sri Lanka Foundation Law, No. 31 of 1973;

(xxv) the Tower Hull Theatre Foundation established by the Tower Hall Theatre Foundation Act, No. 1 of 1978;

(xxvi) the Sri Lanka Inventors Commission established by the Sri Lanka Inventors Incentives Act, No. 53 of 1979;

(xxvii) the Ceylon Medical Council established by the Medical Ordinance;

(xxviii) Ayurvedic Medical Council established by the Ayurveda Act, No. 31 of 1961;

(xxix) the Homeopathic Council established by Homeopathy Act, No. 7 of 1970;

(xxx) the Sri Lanka College of Physicians established by the Sri Lanka College of Physicians (Incorporation) Act, No. 9 of 1971;

(xxxi) the Institute of Engineers, Ceylon, incorporated by the Institute of Engineers, Ceylon Act, No. 17 of 1968;

(xxxii) the Sri Lanka Export Credit Insurance Corporation established by the Sri Lanka Export Credit Insurance Corporation Act, No. 15 of 1978;

(xxxiii) the Sri Lanka Export Development Board established under the Sri Lanka Export Development Board Act, No. 40 of 1979;

(xxxiv) the Sri Lanka Ex-Servicemen’s Association established by the Sri Lanka Ex-Servicemen’s Association Law, No. 8 of 1976;

(xxxv) a company registered under Part VIII of the Companies Act, No. 17 of 1982, being profits and income arising to such company from a ship which is—

(i) engaged in international operations;

(ii) owned or chartered by such company; and

(iii) deemed to be a Sri Lanka ship by reason of a determination made under paragraph (c) of section 30 of the Merchant Shipping Act, No. 52 of 1971, other than profits and income arising to such company form the carriage, by that ship, of passengers, mails, livestock and goods, to or from, a port in Sri Lanka;

(xxxvi) the Institute of Fundamental Studies, Sri Lanka, established by the Institute of Fundamental Studies, Sri Lanka Act, No. 55 of 1981;

(xxxvii) the International Winged Beans (Dambala) Institute established by the International Winged Bean (Dambala) Institute Act, No. 7 of 1982;

(xxxviii) the Buddhist and Pali University of Sri Lanka and any Higher Educational Institution established by, or under, the Buddhist and Pali University of Sri Lanka Act, No. 74 of 1981;

(xxxix) the International Irrigation Management Institute;

(xl) the Sri Lanka Institute of Printing established by the Sri Lanka Institute of Printing Act, No. 18 of 1984;

(xli) the Energy Conservation Fund established by the Energy Conservation Fund Act, No. 2 of 1985;

(xlii) the Tea Small Holdings Development Authority established by the Tea Small Holdings Development Law, No. 35 of 1975;

(xliii) the Co-operative Development Fund established under the Finance Act, No. 11 of 1963;

(xliv) the Board of Investment of Sri Lanka established by the Board of Investment of Sri Lanka Law, No. 4 of 1978;

(xlv) the President’s Fund established by the president Fund Act, No. 7 of 1978;

(xlvi) the National Defence Fund established by the National Defence fund Act, No. 9 of 1985;

(xlvii) the Sri Lanka Institute of Architects incorporated by the Sri Lanka Institute, of Architects Law, No. 1 of 1976;

(xlviii) the Surveyors’ Institute of Sri Lanka incorporated by the Surveyors Institute of Sri Lanka Act, No. 22 of 1982;

(xlix) the Institute of Chemistry, Ceylon incorporated by the Institute of Chemistry (Ceylon) Act, No. 15 of 1972;

(1) the Sri Lanka Institute of Development Administration established by the Sri Lanka Institute of Development Administration Act, No. 9 of 1982;

(li) the Trust Fund set up with European in Economic Community Funds for the benefit of the settlers in—

(i) Zones 2 and 3 of System B area, and

(ii) System G area;

demarcated and administered by the Mahaweli Authority of Sri Lanka established by the Mahaweli Authority Act, No. 23 of 1979;

(lii) the Agricultural and Agrarian Insurance Board established by the Agricultural and Agrarian Insurance Law, No. 20 of 1999;

(liii) the Superior Courts Complex Board of Management established by the Superior Courts Complex Board of Management Act, No. 50 of 1987;

(liv) the international Committee of the Red Cross;

(lv) the institute of Policy Studies of Sri Lanka established by the Institute of Policy Studies of Sri Lanka Act, No. 53 of 1988;

(lvi) the Credit Information Bureau of Sri Lanka established by the Credit Information Bureau of Sri Lanka Act, No. 18 of 1990;

(lvii) Rubber Research Board established under the Rubber Research Ordinance;

(lviii) the Buddha Sasana Fund established by the Buddha Sasana Fund Act, No. 35 of 1990;

(lix) the J R Jayewardene Centre established by the J R Jayawardene Centre Act, No. 77 of 1988;

(lx) the Institute of Supply and Materials Management, Sri Lanka established by the Institute of Supply and Materials Management, Sri Lanka Act, No. 3 of 1981;

(lxi) the Stabilisation Fund for Tea, Rubber and Coconut established under Part IV of the Finance Act, No. 38 of 1971;

(lxii) the Janasaviya Trust Fund incorporated under the Trust Ordinance;

(lxiii) the Institute of Bankers of Sri Lanka established by the Institute of Bankers of Sri Lanka Act, No. 26 of 1979;

(lxiv) the Overseas Private Investment Corporation of’ the United States of America;

(lxv) the Overseas Economic Co-operation Fund of Japan;

(lxvi) the World Conservation Union;

(lxvii) the Institute of Personnel Management, Sri Lanka, incorporated by the Institute of Personnel Management, Sri Lanka Law, No. 24 of 1976;

(lxviii) Public Enterprises Reform Commission of Sri Lanka, established by the Public Enterprises Reform Commission of Sri Lanka, Act, No. 1 of 1996;

(lxix) the Securities and Exchange Commission of Sri Lanka established by the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987;

(lxx) the Bandaranaike Museum Committee incorporated under the Bandaranaike Museum Committee (Incorporation) Act, No. 28 of 1997;

(lxxi) the Geological Survey and Mines Bureau established under the Mines and Minerals Act, No. 33 of 1992;

(lxxii) the Commonwealth Development Corporation;

(lxxiii) the India-Sri Lanka Foundation incorporated under the Companies Act, No. 17 of 1982;

[S 8(a)(lxxiii) am by s 2(1) of Act 8 of 2001.]

(lxxiv) the European Investment Bank; and

[S 8(a)(lxxiv) ins by s 8(2) of Act 8 of 2001;
am by s 3(1)(a) of Act 12 of 2004.]

(lxxv) The Nordic Development Fund established pursuant to a treaty entered between the Governments of Denmark, Finland, Iceland, Norway and Sweden on November 2, 1988;

[S 8(a)(lxxv) ins by s 3(1)(b) of Act 12 of 2004.]

(lxxvi) Management Corporation established under Apartment Ownership Law, No. 11 of 1973 as last amended by Act, No. 39 of 2003;

[S 8(a)(lxxvi) ins by s 3(1)(b) of Act 12 of 2004.]

(lxxvii) the Sri Lanka Institute of Taxation incorporated by the Sri Lanka Institute of Taxation (Incorporation) Act, No. 21 of 2000; and

[S 8(a)(lxxvii) ins by s 3(1)(b) of Act 12 of 2004;
am by s 4(1) of Act 8 of 2005.]

(lxxviii) The Nordic Investment Bank;

[S 8(a)(lxxviii) ins by s 4(2) of Act 8 of 2005.]

Provided however that except in the ease of a body of persons referred to in subparagraphs (ix), (xi), (xv), (xvii), (xx), (xxi), (xxxix), (li), (liv), (ixiv), (lxv), (lxxii), (lxxiii) and (lxxiv) and (lxxv) the exemption from income tax of the profits and income of any other body of persons referred to in this paragraph shall not extend to any such profits and income of that body of persons as consists of dividends or interest, in respect of which tax has been deducted under subsection (1A) of section 61 or section 122A respectively.

[S 8(a) proviso ins by s 4(2) of Act 10 of 2002;
am by s 3(1)(c) of Act 12 of 2004.]

(b) the income of any local authority or Government institution, exclusive of

(i) the income of any trust or other matter vested in or administered by such authority or institution, being income to which such authority or institution is not beneficially entitled; and

(ii) the profits and income for any period commencing on the date of acquisition or vesting, as the case may be, of any business undertaking acquired by or vested in the Government under the Business Undertakings (Acquisition) Act, No. 35 of 1971;

(c) the profits and income of

(i) the Government of any foreign country, being profits and income derived by that Government either directly or through any agency of that Government from aid granted in money, goods, services or in any other form by that Government to the Government of Sri Lanka;

(ii) the Government of the People’s Republic of China, or of any agency of that Government, being profits and income derived from the business of ship-owner or charterer and referred to in any agreement entered into between that Government and the Government of Sri Lanka;

(iii) a foreign currency banking until from all off-shore transactions of the unit for any year of assessment commencing on or before April 1, 2003.

[S 8(c)(iii) am by s 3(2) of Act 12 of 2004.]

For the purposes of this subparagraph any foreign currency transaction which any foreign currency banking unit enters into, with any other foreign currency banking unit, shall be deemed to be an off-shore transaction;

(d) the profits and income of a charitable institution, being

(i) the profits of a business carried on by that institution if such profits are applied solely to a charitable purpose of that institution and

(a) either the business is carried on in the course of the actual carrying out of a primary purpose of that institution or the work in connection with the business is mainly performed by beneficiaries of that institution;

(b) such institution receives grants from the Government of Sri Lanka and is approved by the Minister for the purposes of this paragraph and the business is of a casual nature;

(ii) the net annual value of

(a) any place of public worship and its premises administered by such institution;

(b) any place or premises owned and occupied by such institution solely for any of the purposes of that institution;

(iii) the profits and income from any property donated by royal or other grant before March 2, 1815, to any place of public worship administered by such institution, in so far as such profits and income are applied to the purposes to which grant was made;

(e) the profits and income of any undertaking for operating yachts and pleasure crafts registered with the Director of Merchant Shipping if such undertaking is—

(i) carried on by individuals who are not citizens of Sri Lanka or by a company the shares of which are owned entirely by individuals who are not citizens of Sri Lanka or by non-resident companies, and

(ii) approved by the Minister;

(f) the profits and income for any year of assessment commencing prior to April 1, 2003, of any unit trust or mutual fund if not less than seventy per centum of such profits and income are distributed to its unit holders before the expiry of one year from the end of that year of assessment.

[S 8(f) am by s 4 of Act 37 of 2003.]

9. Exemption from Income Tax of certain profits and income of certain officers and employees.

(1) There shall be exempt from income tax

(a) the emoluments, pension and any other benefits arising to any person from the office of the President of the Republic of Sri Lanka.

(b) the official emoluments for any year of assessment commencing on or before April 1, 2005, paid to—

[S 9(1)(b) am by s 5(1) of Act 8 of 2005.]

(i) any individual who holds any paid office under the Republic out of the Consolidated fund;

(ii) any employee of any public corporation being a public corporation which pays such emolument or such pension or such profits from employment wholly or partly out of the sums voted annually by Parliament to such corporation from the Consolidated Fund;

(iii) the Governor of any Province appointed under Article 154B of the Constitution;

(iv) any member of any Provincial Council;

(v) any employee of any Provincial Council or to any officer of any Provincial Public Service;

(vi) any member of any local authority;

(vii) any employee of any local authority;

(viii) any employee of any University which is established or deemed to be established by the Universities, No. 16 of 1978;

(ix) any employee of the Institute of Policy Studies of Sri Lanka established by the Institute of Policy Studies of Sri Lanka Act, No. 53 of 1988;

(x) a member or employee of any Board or Commission of inquiry established by or under any law being a board or commission all the members of which are appointed by the President or by a Minister,

and such pension or any such profits, from employment referred to in paragraph (c) of subsection (1) of section 4 as are received by any person in respect of past services performed by such person or by any other person whether before or after the commencement of this Act, as an officer or employee referred to in items (i), (ii), (iii), (iv) (v) (vi), (vii), (viii) or (ix).

(bb) one half of the official emoluments for any year of assessment commencing on or after April 1,2005, paid to—

(i) any individual who holds any paid office under the Republic, out of the Consolidated Fund;

(ii) any employee of any public corporation, being a public corporation which pays such emoluments or such pension or such profits, from emoluments wholly or partly out of the sums voted annually by Parliament to such corporation from the Consolidated Fund;

(iii) the Governor of any Province appointed under the Article 154B of the Constitution;

(iv) any member of any Provincial Council;

(v) any employee of any Provincial Council or to any officer of any Provincial Public Service;

(vi) any member of any local authority;

(vii) any employee of any local authority;

(viii) any employee of any University which is established or deemed to be established by the Universities Act, No. 16 of 1978;

(ix) any employee of the Institute of Policy Studies of Sri Lanka, established by the Institute of Policy Studies of Sri Lanka Act, No. 53 of 1988;

(x) a member or employee of any board or commission of inquiry established by or under any law being a board or commission, all the members of which are appointed by the President or by a Minister.

and any such pension or any profit from employment referred to in paragraph (c) of subsection (1) of section 4 as are received by any individual in respect of past services performed by such individual or by any other person whether before or after the commencement of this Act, as an individual, an employee, the Governor or a member as referred to in items (i),
(ii), (iii), (iv), (v), (vi), (vii), (viii) or (ix).

[S 9(1)(bb) ins by s 5(2) of Act 8 of 2005.]

(c) the emoluments arising in Sri I Lanka and any income not arising in Sri Lanka of any individual who is a scientist, technician expert or adviser who is not a citizen of Sri Lanka and who is brought to and employed in Sri Lanka by any undertaking being an enterprise with which an agreement has been entered into by the Board of Investment under section 7 of the Board of Investment of Sri Lanka Law, No. 4 of 1978 for the purposes of that under taking:

Provided that the emoluments of an individual shall not be exempt from income tax after the date of the cessation of employment of such individual in such undertaking or the date on which the exemption from tax granted, by such agreement ends whichever is the earlier;

(d) the official emoluments, arising in Sri Lanka, and any income not arising in or derived from Sri Lanka of

(i) the Diplomatic Representative in Sri Lanka (by whatever name or title designated) of the Government of any other country;

(ii) any such member of the staff of any Diplomatic Representative referred to in subparagraph (i), any such Consul or Trade Commissions, and any such member of the staff of such Consul or Trade Commissioner, as is a citizen or subject of the country represented by that Diplomatic Representative, Consul or Trade Commissioner, if the Minister, on being satisfied that a corresponding official of the Government of Sri Lanka resident in the country represented by that person is or would be granted similar exemption from income tax by that country, declares that the exemption shall apply in that case:

Provided that the exemption shall not apply in the case of any person if such person carries on or exercises in Sri Lanka any other employment or any trade business profession or vocation.

(iii) any expert, adviser, technician or official who is brought to Sri Lanka by the Government of Sri Lanka through any Specialised Agency of the United Nations Organisation or under the Point Four Assistance programme of the Government of the United States of America or through the Colombo Plan Organisation (including its Technical Assistance Bureau) or through the Asia Foundation or any other organisation approved by the Minister as being of a similar character, and whose salary or principal emolument is—

(a) payable out of the funds provided by way of grant or other assistance to the Government of Sri Lanka by any such Organisation, Programme or Foundation or any other organisation as the case may be; or

(b) not payable by the Government of Sri Lanka;

(iv) any trainee from abroad who is sent to Sri Lanka under any of the Technical Co-operation Programmes of the United Nations Organisation and its Specialised Agencies, or of the Colombo Plan Organisation, or of any other organisation approved by the Minister as being of a similar character;

(v) any official of the United Nations Organisation who is resident in Sri Lanka and who is not a citizen of Sri Lanka;

(vi) members of any naval, military or air force of any country other than Sri Lanka who are in Sri Lanka at the request, or with the concurrence, of the Government of Sri Lanka;

(vii) persons employed in any civil capacity by the Government of any country other than Sri Lanka who, not being persons resident in Sri Lanka for a period exceeding three months immediately prior to the date of commencement of such employment, are so employed in or visit Sri Lanka for any purpose connected with the presence in Sri Lanka, of such members of any naval, military or air forces as are referred to in sub-paragraph (vi); and

(viii) any, person who is not citizen of Sri Lanka and who is employed in Sri Lanka by the Asia Foundation or by the Overseas Economic operation Fund of Japan or the Commonwealth secretariat in any of its programmes technical co-operation with Sri Lanka or the Commonwealth Development corporation:

Provided that the liability to income tax of any person referred to in subparagraphs (i), (ii), (iii), (iv) or (v) as regards other income arising in or derived from Sri Lanka shall be the same as though he was a non residue person.

(e) the official emoluments of any citizen of sri Lanka who is employed as an expert technical official by the United Nations Organisation or by any specialised Agency of that Organisation;

(f) the official emoluments of any individual who is employed by the World Tourism Organisation, the International Irrigation Management Institute, the Colombo Plan Bureau, the Asian Development Bank, the World Bank the international Committee of the Red Cross, the World Conservation Union or the European Investment Bank;

[S 9(1)(f) of am by s 3 of Act 8 of 2001.]

(g) the value of any travel warrant or passage granted to a person who is not citizen of Sri Lanka to enable him to come to Sri Lanka to assume duties or to visit his home abroad or to return from Sri Lanka on the termination of his services, whether on retirement or otherwise or of any travel warrant or passage granted to the wife or any son or daughter of such person to come to Sri Lanka or to visit his or her home abroad or to return from Sri Lanka on the Termination of the services such person;

(h) any allowance granted by an employer to his employee for traveling, subsistence and lodging in respect of travel by such employee outside Sri Lanka in connection with his employment;

(i) the emoluments earned, or the pension arising, in any year of assessment, in foreign currency, by or to, any individual resident in Sri Lanka in respect of

(i) services rendered by him in that year of assessment; or

(ii) past services rendered by him or his spouse,

outside Sri Lanka in the course of any employment carried on, or exercised by him or his spouse, if such emoluments or pension are paid to him in Sri Lanka or such emoluments or pension less such amount expended by such individual outside Sri Lanka as is considered by the Commissioner-General to the reasonable expenses are remitted by him to Sri Lanka;

(j) the emoluments earned in any year of assessment commencing prior to April 1, 2003, by any individual employed on a ship which is

[S 9(1)(j) am by s 5(1) of Act 37 of 2003.]

(i) owned or chartered by a company registered under Part VIII of the Companies Act, No. 17 of 1982; and

(ii) deemed to be a Sri Lanka ship by reason of a determination made under paragraph (c) of section 30 of the Merchant Shipping Act, No. 52
of 1971;

(k) profits and income not exceeding in the aggregate four thousand eight hundred rupees from all sources other than employment for any year of assessment commencing prior to April 1, 2003, derived by or arising or accruing to, an individual or any child whose total statutory income is aggregated with the income of that individual, if the total statutory income, for that year of assessment, of that individual consists only of profit and income

[S 9(1)(k) am by Act 5(2) of Act 37 of 2003.]

(i) from employment not exceeding one hundred and fifty thousand rupees; and

(ii) not exceeding four thousand eight bundled rupees from all sources of profits and income other than employment.

and accordingly, where any income tax has been paid by deduction or otherwise, by such individual in any year of assessment, in respect of any profits and income which are exempt under this paragraph such tax shall, on an application in that behalf being made in writing by such individual within three years of the end of that year of assessment, be refunded to him;

(l) the value of any free transport by motor coach provided by an employer to an employee for travel by such employee, from his residence to his place of work or from place of work to his residence,

(m) such part of any sum paid to an employee at the time of his retirement, from any provident or pension fund, or the Employees Trust Fund established by the Employees Trust Fund Act, No. 46 of 1980 as represents income derived by that fund, for any period commencing on or after April 1, 1987 from investments made by it;

(n) such part of any sum referred to in paragraph (c) of subsection (i) of section 4(1) paid to any employee at the time of his retirement from any employment in am company. formed under the Commission of Public Corporations or Government Owned Business Undertakings into Public Companies Act, No. 23 of Act, 1987 as is attributable to his period of service ending before April 1, 1997 in any public corporation or any Government Owned Business Undertaking, as the case may be;

(o) such part of any sum referred to in paragraph (c) of subsection (1) of section 4 paid to any employee at the time of his retirement from any employment in any public corporation other than any public corporation referred to in sub-paragraph (ii) of paragraph (b) of subsection (1), as is attributable to the period of service of such employee prior to April 1, 1997, in such public corporation;

(p) for any year of assessment commencing on or before April 1, 2005, any sum paid to any employee by the employer of such employee, being a sum paid as compensation for loss of any office or employment consequent to

[S 9(1)(p) am by s 5(3) of Act 8 of 2005.]

(i) the voluntary retirement by such employee in accordance with a scheme, which in the opinion of the Commissioner-General is uniformly applicable to all employees employed by such employer; or

(ii) the retrenchment of such employee by such employer in accordance with a scheme approved by the Commissioner of Labour.

(pp) for any year of assessment commencing on or after April 1, 2005, such part of any sum paid to any employee being a sum paid as compensation for loss of any office or employment consequent to

(i) the voluntary retirement by such employee in accordance with a scheme, which in the opinion of the Commissioner-General is uniformly applicable to all employees employed by such employer; or

(ii) the retrenchment of such employee in accordance with a scheme approved by the Commissioner-General of Labour, as does not exceed two million rupees.

[S 9(1)(pp) ins by s 5(4) of Act 8 of 2005.]

(2) Nothing in paragraph (b) or paragraph (c) of subsection (1) shall apply to, or in relation to, any individual who is not a citizen of Sri Lanka and who

(a) has entered into a contract of employment; or

(b) is brought to, and employed in, Sri Lanka,

with or by any undertaking, other than an undertaking being an enterprise with which an agreement has been entered into prior to December 31, 1994 on an application made in that behalf prior to November 11, 1993 by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978.

(3) Notwithstanding the provisions of the proviso to paragraph (c) of subsection (I) and of subsection (2) the emoluments of any individual who is not a citizen of Sri Lanka and who is brought to and employed in Sri Lanka by an enterprise with which an agreement has been entered into by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, and which has opted to be charged with income fax in lieu of the exemption from income tax granted under such agreement shall be exempt from income tax up to the date of cessation of employments of such individual in such enterprise or the date on which the exemption from income tax granted in respect of such enterprise would but for such option, have ended, whichever is the earlier.

10. Exemption from Income tax of certain interest received.

There shall be exempt from income tax

(a) the accumulated interest payable prior to April 1, 2002 to an individual in respect of any Ceylon Savings Certificate issued under the Savings Certificates Ordinance or any National Savings Bank Certificate issued under the National Savings Bank Act, No. 30 of 1971, and put chased by that individual on or before November 15,1978.

[S 10(a) am by s 5(1) of Act 10 of 2002.]

(b) the interest accruing to any company, partnership or other body of persons outside Sri Lanka from any loan granted by that company, partnership or body of persons to the Government of Sri Lanka or to any public corporation or to any Government institution or to any commercial bank for the time being operating in Sri Lanka or to any other undertaking if such loan is approved by the Minister as being essential for the economic progress of Sri Lanka;

(c) the interest accruing to any person or partnership outside Sri Lanka from any security, note or coupon issued by the Government of Sri Lanka in respect of a loan granted in foreign currency by that person or partnership to the Government of Sri Lanka, if such loan is approved by the Minister as being essential for the economic progress of Sri Lanka;

(d) the interest occurring to any person from moneys lying to his credit in a special account opened by him or on his behalf in a commercial bank with the approval of the Central Bank of Sri Lanka for the deposit in accordance with the conditions imposed by the Central Bank of Sri Lanka, of sums obtained by him by the exchange of foreign currency held by him outside Sri Lanka;

(e) the interest accruing to any person on moneys lying to his credit, in foreign currency, in any account opened by him, or on his behalf, in any Commercial Bank or any specialised Bank with the approval of the Central Bank of Sri Lanka;

[S 10(e) am by s 6(1) of Act 8 of 2005.]

(ee) the interest accruing to any person on moneys invested in Reconstruction Bonds issued by the Government of Sri Lanka denominated in United States Dollars;

[S 10(ee) ins by s 5(2) of Act 10 of 2002.]

(eee) the interest accruing to any person on moneys invested in Sri Lanka Development Bonds denominated in United States Dollars issued by the Central Bank of Sri Lanka on or after April 1,2001;

[S 10(eee) ins by s 5 (2) of Act 10 of 2002]

(eeee) …

[S 10(eeee) rep by s 4 of Act 12 of 2004.]

(f) any interest forming part of the surrender value of any Tax Reserve Certificate surrendered prior to April 1, 2002;

[S 10(f) am by s 5(3) of Act 10 of 2002.]

(g) the interest accruing to any person on moneys lying to his credit in foreign currency with any foreign currency banking unit;

(h) the interest accruing prior to April 1, 2002 to any financial institution from any loan granted by it to any venture capital company established for the implementation of any entrepreneur development programme of the Government, if the proceeds of such loan are utilised by such company for the implementation of such programme.

[S 10(h) am by s 5(4) of Act 10 of 2002.]

For the purpose of this paragraph “financial institution” means any company whose business or part of whose business consists of the acceptance of money by way of deposit or loan in the form of debenture or bond or in any other form, and the payment of interest thereon.

(i) such part of any interest as does not exceed one hundred thousand rupees, accruing in any year of assessment commencing on or after April 1, 2005 to any individual who is a citizen of Sri Lanka and resident in Sri Lanka, and who is more than sixty years of age on the first day of that year of assessments from any special deposit scheme for age on the first day of that year of assessment, from any special deposit scheme for senior citizens operated by the National Savings Bank established by the National Saving Bank Act, No. 30 of 1971, or by the Bank of Ceylon established by the Bank of Ceylon Ordinance, or the People’s Bank established by the People’s Bank Act, No. 29 of 1971.

[S 10(i) ins by s 6(2) of Act 8 of 2005.]

11. Exemption from income tax of certain interest.

(1) There shall be exempt from income tax

(a) any dividend paid by a company with which an agreement has been entered into by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978 being an agreement which has been entered into prior to December 31, 1994. on an application made in that behalf prior to November 11, 1993

(i) to any person, during the period for which the profits and income of that company are exempt from income tax under the terms of that agreement or within one year thereafter, out of the profits and income of the company which are exempt from income tax;

(ii) to any person, who is not resident in Sri Lanka notwithstanding anything to the contrary in subsection (1) of section 48;

(b) any dividend paid by a flagship company with which an agreement has been entered into by the Board of Investment of Sri Lanka to any shareholder during the period for which the profits and income of that company are exempt from income tax under the terms of that agreement or within one year thereafter out of the profits and income of such company which are exempt from income tax;

in this paragraph, “flagship company” means any company which has entered into an agreement with the Board of Investment of Sri Lanka under section 17 of the Board
of Investment of Sri Lanka Law, No. 4 of 1978 and which has in accordance with such agreement, invested in Sri Lanka, within the period specified in such agreement, not less than fifty million United Slate of America Dollars or its equivalent in any other foreign currency

(i) in the purchase or construction of any building or in the purchase of any land, plant, machinery or furniture; and

(ii) in the acquisition of any asset not included in paragraph (i) for the use of the undertaking carried on by that company;

(c) any dividend paid by a company with which an agreement has been entered into on or after November 8, 1995 by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978 to any shareholder of that company during the period for which the profits and income of that company are exempt from income tax under the terms of that agreement or within one year thereafter out of the profits and income which are exempt from income tax;

(d) any dividend out of the profits of any company with which an agreement has been entered into by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978 from the operation by such company of a hospital with facilities for paying and non-paying patients for indoor and outdoor treatment, paid to any share holder of such company during the period of five years reckoned from the commencement of the year of assessment in which such hospital commences operations;

(e) any dividend out of the profits within the meaning of paragraph (a) of section 3 of a company

(i) with which an agreement has been entered into by the Board of Investment of Sri Lanka, under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, and

(ii) to which a mining license issued under the Mines and Mineral Act, No. 33 of 1992. has been assigned

paid to any shareholder of such company during the period for which the profits and income of that company are chargeable with income tax at such rate as is determined in accordance with sub-paragraph (a) of the further proviso to paragraph (iv) of regulation 2 of Regulations No. 1 of 1995 made under section 24 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, as last amended by Regulation published in Gazette No. 1019/13 of March 19, 1998 and specified in such agreement or within one year thereafter;

(f) any dividend paid to a shareholder of a company out of such profits and income of that company arising on or after April 1, 1977. which are exempt from income tax under section 15, 17, 18, 18A, 19, 20, 20A, 21, 21A, 21B, 21C, 21D, 21E, 2IF, 21G or 21H of this Act or section 8(a) (xxxviii), 15, 16A, 16B, 16c, 16D, 17A, 17C, 17D, 17J, 17JJ, 17K, 17KK, 17L, 17M, 18, 19, 20, 20A, 20B, 20C, 21, 22, 22A, 22B, 22C, 22D, 22DDD or 22DDDD of the Inland Revenue Act, No. 28 of 1979 or under the Inland Revenue Act, No.4 of 1963. if such dividend is paid during the period for which such profits and income of that company are exempt from income tax under any of those provisions or within one year thereafter;

[S 11(f) am by Sch of Act 8 of 2001; am by s 6(1) of
Act 37 of 2003.]

(g) any dividend paid to a shareholder of a company, out of any such dividend received by that company during the period for which dividends as is referred to in paragraphs (a), (b), (c), (d), (e) or (f) respectively, are exempt from income tax, if the first mentioned dividend is paid during any year of assessment in which the second-mentioned dividend was received by that company or within one year thereafter;

[S 11(1)(g) am by s 5(2) of Act 12 of 2004.]

(h) any dividend paid to a shareholder of a company out of any such dividend as is referred to in paragraphs (a), (b), (c), (d), (e) or (f) received by that company through one or more intermediary companies during the period for which the dividends referred to in paragraphs (a), (b), (c), (d), (e) or (f) are exempt from income tax or within two years thereafter, if the first mentioned dividend is paid during the year of assessment in which the second mentioned dividend was received or within one year thereafter; and

[S 11(h) am by s 6(2) of Act 37 of 2003; am by s 5(3) of Act 12 of 2004.]

(i) any dividend paid to an unit holder of a unit trust or a mutual fund, on or after April 1, 2003, out of the taxable profits and income of such unit trust or mutual fund.

[S 11(i) ins by s 6(3) of Act 37 of 2003; am by s 7 of
Act 8 of 2005; 11 re-numbered as 11(1) of Act 5(1) of Act 12 of 2004.]

(2) —

(a) The provisions of paragraph (b), (c), (d) or (e) of subsection (1) shall not apply to any dividend paid on or after April 1, 2004, in relation to any agreement referred to therein, which has been entered into on or after November 6, 2002; or

(b) The provisions of paragraph (f) of subsection (1) shall not apply to any dividend paid on or after April 1, 2004 by any company referred to in that paragraph, which qualified for an exemption on to after November 6, 2002.

[S 11(2) ins by s 5(4) of Act 12 of 2004.]

12. Exemption from income tax of certain profit and income from lands and improvements thereon.

(1) There shall be exempt from income tax

(a) the net annual value of not more than one place of residence owned by, and occupied by or on behalf of an individual;

(b) the income accruing to the owner of any house constructed prior to April 1, 2003 for the year of assessment in which the construction of that house was completed and for the six year; assessment immediately succeeding that year of assessment, if such house is used solely for residential purposes and

[S 12(1)(b) am by s 7(1) of Act 37 of 2003.]

(i) is occupied by the owner thereof; or

(ii) has a floor area (inclusive of the thickness of the walls of not exceeding two thousand square feet:

Provided that where the floor area of the house is one thousand and five hundred square feet or less the income accruing to the owner shall be exempt from income tax for the year of assessment in which the construction of that house was completed and for the nine years of assessment immediately succeeding that year of assessment;

(c) the income accruing to the owner of a house, the income from which was or is not exempt from income tax under paragraph (b) of this subsection and which house is converted into two or more places of residence, each such place of residence being separately assessed for the purpose of rates, such income accruing being the income from any such place of residence for

(i) the year of assessment in which such conversion was effected and for the five years of assessment immediately succeeding that year of assessment, if the floor area of such place of residence does not exceed one thousand square feet; or

(ii) the year of assessment in which such conversion was effected and for the three years of assessment immediately succeeding that year of assessment, if the floor area of such place of residence exceeds one thousand square feet but does not exceed two thousand square feet;

(d) the net annual value of any land and improvements thereon owned by a body of persons the primary object of which is the promotion of any spoil which is recognised as a sport for the purposes of the Sports Law, No. 25 of 1973 and used for that object by that body.

(1A) There shall be exempt from income tax, the income accruing to the owner of any house from such house, where such house is constructed on or after April 1, 2003, for the year of assessment, in which the construction of such house was completed and for the four years of assessments immediately succeeding that year of assessment, if such house is used solely for residential purposes:

Provided that where the floor area of the house is one thousand and five hundred square feet or less the income accruing to the owner on or after April 1, 2005 shall be exempt from income tax for the year of assessment in which the construction of that house is completed and for the six years of assessment immediately succeeding that year of assessment.

[S 12(1A) subs by s 8 of Act 8 of 2005.]

(2) For the purposes of this section “owner” includes a co-owner.

13. Exemption from income tax of certain subsidies.

There shall be exempt from income tax any sum paid to any person as a subsidy or grant

(a) out of the Capital Fund established under the Sri Lanka Tea Board Law, No. 14 of 1975;

(b) out of the Rubber Replanting Subsidy Fund established under the Rubber Replanting Subsidy Act;

(c) by the Coconut Cultivation Board established under the Coconut Development Act, No. 46 of 1971;

(d) by the Ministry of Fisheries for the purchase by such person of fishing boats, marine engines, fishing gear and other fishing equipment;

(e) out of the Export Development Fund established by the Sri Lanka Export Development Act, No. 40 of 1979;

(f) under any other scheme for the planting or replanting of any other agricultural product;

(g) out of the Mill Development Fund administered by the Coconut Development Authority established under the Coconut Development Act, No. 46 of 1971, for the modernisation of machinery.

14. Exemption from income tax of certain capital gains.

(1) There shall be exempt from income tax

(a) any capital gain arising on

(i) the sale by any individual, or the acquisition by the State, of any house constructed by such individual and used solely for residential purposes, such sale being the first sale of that house;

(ii) the sale by any individual, or the acquisition by the State, of any house owned by such individual and used solely for residential purposes, if such individual has not sold or the State has not acquired from that individual on or after April 1, 1978, any house other than a house referred to in sub-paragraph (i);

(iii) the sale to a customer of any property held by the vendor primarily for sale to customers in the ordinary course of his trade or business;

(iv) the sale of any property by any person, being property used by him in producing income in any trade, business, profession, vocation or employment carried on or exercised by him and in respect of which an allowance for depreciation has been granted under section 23, if the full proceeds of sale are used within one year of the sale, for the replacement of such property to be used by such person for producing income in any trade, business. profession. vocation or employment carried on or exercised by him;

(v) the passing of any property subject to a trust from the trustee to any beneficiary under the trust;

(vi) the passing of any property belonging to the estate of a deceased person from his executor to any testate or intestate heir of the deceased;

(vii) the passing of any property to any person, on the death of the owner of that property;

(viii) the passing of any property occurring on the gift of that property by its owner to any other person;

(ix) the passing of any property, being shares in any company incorporated in Sri Lanka with which an agreement has been entered into by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, from the owner of that property to any other person by way of sale, gift or otherwise;

(x) change of ownership of any motor vehicle in respect of which a deduction for depreciation has not been allowed under subsection (1) of section 23 of this Act or under section 23 of the Inland Revenue Act, No. 28 of 1979 or under section 10 of the Inland Revenue Act, No. 4 of 1963 or of any household effect or other article of personal use (excluding jewellery);

(xi) change of ownership of a right to exploit a property occurring by a transfer of that right;

(xii) the surrender of a life insurance policy and the surrender, transfer or extinction of a life interest;

(xiii) the change of ownership of any share in a quoted public company;

(xiv) the transfer, upon the conversion of a business carried on by an individual, either solely or in partnership with others, into a quoted public company, of any part of the capital assest of such business to such company, but only if such part of those assest as were acquired for that business prior to March 31, 1977 are transferred to that company at a price not exceeding the market value of those assest on March 31, 1977;

(xv) the transfer upon the conversion of a business carried on by an individual, either solely or in partnership with others, into a limited liability company not being a company referred to in paragraph (xiv) of the capital assest of such business to such company if but only if not less than eighty per centum of the shares of such company are held in any case where such business—

(A) was a sole proprietorship, by the former proprietor; or

(B) was a partnership, by the former partners in the same proportion in which profits of the partnership were shared;

(xvi) the change of ownership of any property occurring not less than twenty-five years after the date of acquisition of such property by the person to whom such gain arises;

(xvii) the sale, by any venture capital company referred to in section 22DDD of the Inland Revenue Act, No. 28 of 1979 of any share or stock, held by it in any other company;

(xviii) the sale, by any unit trust or any mutual fund referred to in section 22DDDD, of the Inland Revenue Act, No. 28 of 1979 of any share or stock held by such unit trust or mutual fund in any other company;

(xix) the sale, by any person of any unit held by such person in any unit trust or any mutual fund after one year from the date of acquisition by such person, of such unit;

(xx) the sale, by any person of any treasury bill held by such person, in the secondary market;

(xxi) the relinquishment or transfer of any right to a share received under a rights issue or a bonus issue of a quoted public company;

(xxii) the sale by any person of any treasury bond. registered stock or any other security issued under the Registered Stock and Securities Ordinance and held by such person, in the secondary market;

(xxiii) the sale, by any person, of any bond, debenture or other debt instrument issued by any company and held by such person, being a bond, debenture or other debt instrument which, at the time of such sale is quoted in any official list published by any Stock Exchange licensed by the Securities and Exchange Commission of Sri Lanka;

(xxiv) change of ownership of any

(A) share warrant; or

(B) financial instrument which is derived from and dependant on another financial instrument,

issued by any company and which at the time of such change of ownership, is quoted in any official list published by any Stock Exchange licensed by the Securities and Exchange Commission of Sri Lanka;

(b) the aggregate amount of the capital gain of any person for any year of assessment which arises in respect of movable property other than stocks, shares, debentures or debenture stocks, if such aggregate amount does not exceed two thousand rupees;

(c) the first five thousand rupees of the capital gain of any person for any year of assessment, if such person has a total assessable income for the three years of assessment immediately preceding that year of assessment which is less than the total of the allowances which under subsection (1) of section 30 of this Act, or subsection (1) of section 30 of the Inland Revenue Act, No. 28 of 1979, are required to be deducted from his assessable income in arriving at his taxable income for the three years of assessment;

[S 14(1)(c) am by s 7(1) of Act 10 of 2002.]

(d) the aggregate amount of the capital gains of any person for any year of assessment commencing on or after April 1, 2002 arising from any transaction stipulated in section 7.

[S 14(1)(d) ins by s 7(2) of Act 10 of 2002.]

(2) For the purposes of sub-paragraphs (xx), (xxii) and (xxiii) of paragraph (a) of subsection (1),

“capital gain” means the excess, if any, of the capital gain computed in accordance with the provisions of subsection (2) and (4) of section 7 over such part of the interest which hut for such sale, would have accrued to such person in respect of such bill, bond, stock or other security had such bill. bond, stock or other security been held by such person until such bill, bond, stock or other security matured, as is attributable to the period during which such bill, bond, stock or other security was held by such person.

[S 14(2) am by Sch of Act 8 of 2001.]

15. Miscellaneous exemptions from income tax.

There shall be exempt from income tax

(a) the emoluments earned in am year of assessment in foreign currency by any individual resident in Sri Lanka, in respect of services rendered by him in that year of assessment outside Sri Lanka in the course of any profession or vocation carried on or exercised by him, if such emoluments (less such amount expended by such individual outside Sri Lanka as is considered by the Commissioner-General to be reasonable personal expenses) are remitted by him to Sri Lanka;

(aa) the profits and income earned by a resident company or partnership carrying on or exercising any trade, business, profession or vocation, in foreign currency, in any year of assessment commencing—

(i) on or after April 1, 2001, in respect of services rendered by that company or partnership in that year of assessment outside Sri Lanka (including services relating to any construction project); and

(ii) on or after April 1, 2003. in respect of any off-shore business which does not any way involve any goods manufactured or produced in Sri Lanka or any goods imported into Sri Lanka,

[S 15(aa) am by s 8(1) of Act 37 of 2003.]

in the course of carrying on or exercising such trade, business, profession of vocation, if such profits and income (less any such amount expended by that company or partnership outside Sri Lanka as is considered by the Commissions-General to be reasonable expenses) are remitted to Sri Lanka through a bank.

[S 15(aa) ins by s 4 of Act 8 of 2001.]

(b) the income accruing to a person receiving instruction at any university, college, school or other educational establishment from a scholarship, exhibition, bursary, or similar educational endowment;

(c) any capital sum received by way of death gratuity or as compensation for death or injuries;

(d) any sum received by an informer prior to April 1, 2003 as a reward under any scheme for the payment of rewards by a Government institution;

[S 15(d) am by s 8(2) of Act 37 of 2003.]

(e) wound and disability pensions granted to members or ex-members of the Forces of Her Majesty the Queen of the United Kingdom;

(f) United States Government disability pensions;

(g) any prize received on or before March 31, 2004 at a lottery conducted by the National Savings Bank, by the holder of any bond issued by that Bank on which interest is not payable by that Bank;

[S 15(g) am by s 6(1) of Act 12 of 2004.]

(h) any royalty received by a non-resident person from a company with which an agreement has been entered into before April 1, 2004 by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, in respect of any period during which the profits and income of that company are exempt from income tax under the terms of that agreement:

[S 15(h) am by s 6(2) of Act 12 of 2004.]

Provided that where such company opts, in lieu of the exemption from income tax under the terms of such agreement, to be charged with income tax, the exemption from income tax granted by this paragraph shall apply to any royalty received by any non-resident person from such company in respect of the period during which the profits and income of such company would, but for such option, have been so exempt from income tax;

(i) the profits and income within the meaning of paragraph (a) of section 3 arising to any person from—

(i) the sale of gold, gems or jewellery, for any year of assessment commencing prior to April 1,2005;

(ii) export of gold, gems or jewellery, for any year of assessment commencing on or after April 1, 2005;

[S 15(i) subs by s 9(1) of Act 8 of 2005.]

(j) the profits and income arising in Sri Lanka before April 1, 2004, in the consignor or consignee, from the export of

[S 15(j) am by s 6(3) of Act 12 of 2004.]

(i) any precious stones or metals not mined in Sri Lanka;

(ii) any petroleum, gas or petroleum product; or

(iii) such other products as may be approved by the Minister for the purposes of this paragraph having regard to the foreign exchange benefits that are likely to accrue to the country from the export of such products,

being stones, metals, petroleum, gas or produce as the case may be, brought to Sri Lanka on a consignment basis, and re-exported, without subjecting such stones metals, petroleum, gas or products, as the case may be to any process or manufacture;

(k) any prize received by a person as an award made by the “President of the Republic of Sri Lanka”;

(l) any prize received by a person as an award made by the Government in recognition of an invention created, or any research undertaken, by such person;

(m) the profits and income arising before April 1, 2004, to any person from an undertaking approved by the Minister for the operation and maintenance of facilities for the storage of goods or commodities brought into Sri Lanka for re-export;

[S 15(m) am by s 6(4) of Act 12 of 2004.]

(n) any sum received by a person from the President Fund established by the President’s Fund ACE. NO. 7 of 1978;

(o) any sum received by a person from the National Defence Fund established by the National Defence Fund Act, No. 9 of 1985;

(p) such part of any sum as does not exceed three thousand rupees paid by the Sri Lanka Bureau of Foreign Employment, established by the Sri Lanka Bureau of Foreign Employment Act, No. 21 of 1985, to any person or partnership licensed by such Bureau, to earn on business of a foreign employment agency in respect of any Sri Lankan for whom employment outside Sri Lanka has been provided or secured by such person or partnership;

(q) such part of any sum as does not exceed three thousand rupees received in any year of assessment by the Sri Lanka Bureau of Foreign Employment established by the Sri Lanka Bureau of Foreign Employment Act, No. 21 of 1985, in respect of any Sri Lankan for whom employment outside Sri Lanka has been provided or secured by such Bureau;

(r) such part of any sum or the aggregate of sums as does not exceed one hundred thousand rupees received by any individual as an award or awards in recognition of his excellence in the field of fine arts. literature or sports, being an award made with the prior written approval of the Minister in charge of the subject of fine arts, literature, or sports, as the case may be;

(s) any interest or discount accruing to the “Sudu Nelum Movement” established by the Government and registered under section 114 of the Trust Ordinance being interest or discount on any sum of money deposited by the Sudu Nelum Movement with any commercial bank;

(t) …

[S 15(t) rep by s 6(5) of Act 12 of 2004.]

(u) any profits and income within the meaning of paragraph (a) of section 3 derived by or arising or accruing to any person from the sale of any bond debenture or other debt instrument issued by a company and held by him being a bond, debenture or other debt instrument which at the time of such sale is quoted in any official list published by any Stock Exchange licensed by the Securities and Exchange Commission of Sri Lanka;

(v) any profits and income within the meaning of paragraph (a) of section 3 derived by or accruing to, any person, for any year of assessment commencing on or before April 1, 2003, from the sale of any share in any quoted public company; and

[S 15(v) am by s 6(6) of Act 12 of 2004.]

(vv) for the period commencing on April 1, 2004 and ending on December 1, 2004, any profits derived by or accruing to any person, other than a unit trust or a mutual fund, from the sale of any share including a right to any share or a bonus share or a warrant where such disposal has taken place two years after the acquisition:

Provided that the two year period has no application to any unit trust or mutual fund;

[S 15(vv) subs by s 9(2) of Act 8 of 2005.]

(vvv) for the period commencing on January 1, 2005 and ending on March 31, 2005 and for any year of assessment commencing on 1, 2005, any profits derived to any person or other than any unit trust or mutual fund or any venture capital company, from the sale of any share, a right to any share a bonus share or a share warrant in respect of which the Share Transaction Levy under section 7 of the Finance Act, No. 5 of 2005 has been charged or where such disposal has taken place after two years from the date of acquisition.

[S 15(vvv) ins by s 9(3) of Act 8 of 2005.]

(w) the profits and income earned in any year of assessment in foreign currency by any National Association of Sports registered under the Sports Law, No. 25 of 1973. in respect of services rendered by such Association, or in the course of taking part in any sport within the meaning of the Sports Law in that year of assessment outside Sri Lanka, if such profits and income (less such amount as the Commissioner-General considers to be reasonable expenses incurred outside Sri Lanka) are remitted by such Association to Sri Lanka.

For the purposes of this paragraph, “profit” includes gains.

[S 15(w) am by s 6(8) of Act 12 of 2004.]

16. Exemption of certain profits and income of any resident guest.

(1) The profits and income of any resident

(a) not being profits and income arising in or from Sri Lanka; and

(b) accruing from moneys lying to his credit in any account opened by him in a commercial bank for the deposit of sums remitted to him in foreign currency from any country outside Sri Lanka.

shall be exempt from income tax.

(2) For the purpose of this section resident guest means a person to whom a tax exemption has been granted under the Resident Guest (Tax Exemption) Act, No. 6 of 1979.

16A. Exemption of profits and income derived from outside Sri Lanka.

Notwithstanding anything to the contrary in any other provision of this Act, the profits and income derived from outside Sri Lanka by any individual who has been a
non-resident of Sri Lanka and who arrives and stays in Sri Lanka, shall be exempt from income tax, if such individual is a citizen of both Sri Lanka and any other country at the time of such arrival and during the whole of such stay.

[S 16A ins by s 10 of Act 8 of 2005.]

17. Exemption from income tax for five years of the profits and income of certain companies.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assest) of any company from any undertaking referred to in subsection (2), shall be exempt from income tax for a period of five years such period of five years being calculated from the date on which such undertaking commenced to carry on business.

(2) The provisions of subsection (1) shall apply to any company which is approved by the Minister by Order published in the Gazette, prior to April 1, 2002—

[S 17(2) am by s 8 of Act 10 of 2002.]

(a) being a company which is engaged only in carrying on one or more of the undertakings hereinafter specified, namely an undertaking for

(i) animal husbandry;

(ii) the cultivation of Sand with any plant of whatever description other than tea, rubber, coconut or paddy;

(iii) marine or inland fisheries;

(iv) carrying on any activity referred to in any of the foregoing sub-paragraphs and processing the product of such activity;

(v) the production from any agricultural produce of Sri Lanka of such commodities as may be specified by the Minister, by Order published in the Gazette, having regard to the need to provide incentives for the production of such commodities;

(b) being a company which is an Export Production Village Company.

(3) For the purpose of this section “Export Production Village Company” means a company

(a) which is a people’s company within the meaning of the Companies Act, No. 17 of 1982;

(b) the shareholders of which are the Export Development Board established by the Sri Lanka Export Development Act, No. 40 of 1979, and the producers of any of the products produced by that company; and

(c) the products of which are exported by the company or through, any other company engaged in the export of goods or commodities:

Provided that this section shall not apply to any company which carries on an undertaking which had commenced to carry on business prior to November 17, 1983, or which was formed by the splitting up or reconstruction of any business which was in existence prior to November 17, 1983.

17A. Exemption from income tax of profits and income from agricultural undertakings.

(1) The profits and income from any agricultural undertaking (other than any profits and income from the sale of capital assest) shall be exempt from income tax for a period of five years reckoned from the commencement of the year of assessment commencing April 1, 2005.

(2) For the purposes of subsection (1) “profits and income from any agricultural undertaking” means the profits and income from the cultivation of land and the sale of the produce therefrom:

Provided that where the produce from the cultivation of land is subject to any process of production or manufacture in the course of one undertaking, such produce shall be deemed to have been sold for production or manufacture at the open market price prevailing at the time of such sale and profits and income from cultivation of land and sale of the produce therefrom shall be deemed to be the profit and income arising from such deemed sales.

[S 17A ins by s 11 of Act 8 of 2005.]

18. Exemption from income tax of the profits and income of any undertaking which provides certain services.

The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assest), of any person or partnership from any undertaking which commences business on or after April 1, 2000 but prior to April 1, 2002 for the provision of services of refrigerated transport or cold room storage or other services ancillary thereto, shall be exempt from income tax for a period of five years reckoned from the commencement of the year of assessment in which such undertaking commences to carry on business.

[S 18 am by s 9 of Act 10 of 2002.]

18A. Exemption from income tax of the profits and income of certain companies providing infrastructure facilities.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than profits and income from the sale of capital assest) of any company from any specified undertaking referred to in subsection (2), which commences business on or after April 1, 2001 but prior to April 1, 2003, shall be exempt from income tax for such period not exceeding twenty years as may be prescribed by regulation having regard to the nature of the undertaking and the investment made in the undertaking, such period of exemption being reckoned from the commencement of the year of assessment in which such undertaking commences to carry on business.

[S 18A(1) am by s 10 of Act 10 of 2002.]

(2) The provisions of subsection (1) shall apply to a company which is approved by the Minister by Order published in the Gazette on or before June 30, 2004, as being essential for the economic development of the country, being a company which is engaged only in carrying on an undertaking for developing or maintaining or operating or developing, maintaining and operating, an infrastructure faculty.

[S 18A(2) am by s 7 of Act 12 of 2004.]

(3) In this section, “infrastructure facility” means a warehouse, store, industrial park, sanitation or solid waste management system or a project for the supply of electricity, water or urban housing.

[S 18A ins by s 5 of Act 8 of 2001.]

19. Exemption from income tax of the profits and income of any company engaged in non plantation agricultural activities.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assest), of any company from any specified undertaking referred to in subsection (2) which commences business on or after April 1, 2000 but prior to April 1, 2002, shall notwithstanding the provisions of section 40 be exempt from income tax for a period of ten years reckoned from the commencement of the year of assessment in which such company commences to carry on business.

[S 19(1) am by s 11 of Act 10 of 2002.]

(2) For the purposes of subsection (1) “specified undertaking” in relation to any company is an undertaking carried on by such company and which is engaged in

(a) cultivating land with plants of whatever description other than tea. rubber and coconut; or

(b) the production of planting materials certified by the Department of Agriculture as being of high quality. for cultivation referred to in paragraph (a); or

(c) carrying out research work for improving the quality and character of planting materials for cultivation of land referred to in paragraph (a).

20. Exemption from income tax of profits and income of a company which exports fresh or processed vegetables or fruits and cultivates vegetables or fruits.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits from the sale of capital assest), of any company from any specified undertaking referred to in subsection (2) and which commences business on or after April 1, 2000 but prior to April 1, 2002 shall, notwithstanding anything to the contrary in Chapter IX be exempt from income tax for a period of ten years reckoned from the commencement of the year of assessment in which such undertaking commences to carry on business.

[S 20(1) am by s 12 of Act 10 of 2002.]

(2) For the purpose of subsection (1) “specified undertaking” in relation to any company and to any year of assessment means an undertaking carried on by that company and which is engaged in

(i) the export of any fresh or processed vegetables or fruits; and

(ii) the cultivation of land not less than five acres in extent with vegetables or fruits in that year of assessment.

In this section, vegetables include “betel leaves”.

20A. Exemption from income tax of profits and income of an undertaking for export of handicrafts.

(1) Such part of the profits and income within the meaning of paragraph (a) of section 3 as consists of export profits and income of any person or partnership, for every year of assessment commencing on or after April 1, 2001 but prior to April 1, 2004, from any undertaking for the export of such categories of handicrafts as may be specified by the Minister by Order published in the Gazette, having regard to the need to encourage the export market for handicrafts and which conforming to such standards of manufacture as may be specified by the Sri Lanka Handicrafts Board established by the National Crafts Council and Allied Institutions Act, No. 35 of 1982, shall be exempt from income tax.

(2) In this section—

“export profits and income” in relation to a person or partnership and a year of assessment, means the sum which bears to the profits and income (within the meaning of paragraph (a) of section 3 other than profits and income from the sale of capital assest) of that person or partnership for that year of assessment, from the undertaking referred to in subsection (1), the same proportion as the export turnover of that person or partnership for that year of assessment hears to the total turnover of that person or partnership for that year of assessment;

“export turnover” in relation to a person or partnership and a year of assessment means the total amount received or receivable by that person or partnership in that year of assessment, from the export of handicrafts of such categories and conforming to such standards as are referred to in subsection (1) (other than any amount received or receivable by the sale of capital assest);

“handicraft” means an article of decorative value made wholly or mainly by hand;

“total turnover” in relation to a person or partnership and a year of assessment means the total amount received or receivable by that person or partnership in that year of assessment (other than any amount received or receivable by the sale of any capital asset).

[S 20A ins by s 6 of Act 8 of 2001.]

21. Exemption from income tax of profits from the construction and first sale of certain houses.

Where any person who carries on an undertaking for the construction and sale of houses or flats, being an undertaking approved by the Commissioner for National Housing having regard to the housing policy of the government sells on or before March 31, 2005 any house or flat, the floor area of which does not exceed two thousand square feet and the construction of which was commenced by such person on or after January 1, 1977 such sale being the first sale of that house or flat, seventy five per centum of the profits and income arising on or after March 31, 2005 from such sale shall be exempt from income tax.

[S 21 am by s 8 of Act 12 of 2004; am by s 12 of Act 8
of 2005.]

21A. Exemption from income tax of the profits and income of any company from any specified undertaking.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assest) of any company from any specified undertaking referred to in subsection (2) and carried on by such company on or after April 1, 2002, shall be exempt from income tax for a period of five years reckoned from the year of assessment in which the undertaking commences to make profits or any year of assessment not later than two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever is earlier.

(2) For the purposes of subsection (1) “specified undertaking” in relation to a company means—

(a) an undertaking carried on by a company

(i) incorporated before April 1, 2002 and which commenced operations on or after April 1, 2002 but before April 1, 2004, with a minimum investment of rupees two and a half million, invested in such undertaking;

(ii) incorporated before April 1, 2002 and which commenced operations on or after April 1, 2004, with a minimum investment of rupees fifty million, invested in such undertaking;

(iii) incorporated and commenced to carry on the undertaking on or after April 1, 2002 but before April 1, 2004; or

(iv) incorporated on or after April 1, 2004 with a minimum investment of rupees ten million, invested in such undertaking.

and which is engaged in agriculture, agro-processing, industrial and machine tool manufacturing, machinery manufacturing, electronics, export of non-traditional products, or information technology and allied services.

Any company incorporated prior to April 1, 2002 shall be deemed to be carrying on any specified undertaking, if such company has on or after April 1, 2002 commenced an activity which produce goods or commodities that are district from the goods or commodities that were being made by such company with regard to the production methods and output and where the profits and income from such activity can be separately ascertained.

(b) —

(i) any designated project carried on by a company, which qualify under the same investment criteria as referred to in sub paragraph (ii) of paragraph (a) of subsection (2) or;

(ii) an undertaking carried on by a company on or after April 1, 2002 but before April 1, 2004. with an investment in excess of rupees two hundred and fifty million,

and which conforms to the prescribed guidelines; and

(c) an undertaking of a pioneering nature as determined by the Minister by Order published in the Gazette carried on by a company on or after April 1, 2004, with an investment in excess of rupees two hundred and fifty million

[S 21A(2) subs by s 9 of Act 37 of 2003.]

(3) —

(a) Notwithstanding the provisions of subsection (1) for any company having an investment not less than rupees one thousand million in any pioneering undertaking as determined by the Minister, the period of exemption shall be the corresponding period referred to in Column II below, provided the corresponding minimum investment as given in Column I has been made—

Column I Column II

(Rs. Million) (Years)

1000 to 2499 08

2500 and above 10

(b) The amount of investment referred to in subparagraph (i) of paragraph (b) of subsection (2) shall not be applicable to any Export Production Village Company.

(c) In case of a company receiving income from any other trade or business in addition to the income from any specified undertaking or designated project or pioneering undertaking as referred to above, the exemption provided under this section shall be applicable only in respect of the profits and income from the relevant, specific undertaking, designated project or pioneering undertaking, as the case may be.

(4) For the purposes of this section—

(i) “agriculture” means the cultivation of land with plants of any description, rearing of fish or animal husbandry including poultry farms, veterinary and artificial insemination services and other support services;

(ii) “agro processing” means the processing of any agricultural product or fishing product including deep sea fishing, but excludes the processing of black tea in bulk and the manufacture of liquor;

(iii) “non-traditional products” means my goods (other than black tea in bulk, crepe rubber, sheet rubber, scrap rubber, latex and fresh coconuts) including deemed export of such goods, where not less than eighty per centum of the total turnover of such undertaking is from export or deemed export of such non-traditional goods for any year of assessment;

[S 21A(4)(iii) am by s 13 of Act 8 of 2005.]

(iv) “deemed export” means the production or manufacture and supply by any person or partnership of any commodities (other than black tea in bulk, crepe rubber, sheet rubber, scrap rubber, latex and fresh coconuts) to any exporter of such goods without further production or manufacture by such exporter, or the production or manufacture and supply of any goods to any exporter for the production, manufacture or packaging for export of any commodity which is a non-traditional product.

[S 21A subs by s 9 of Act 12 of 2004.]

21B. Exemption from income tax of certain undertakings for infrastructure development.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from, the sale of capital assest) of any company from any specified undertaking referred to in subsection (2) shall be exempt from income tax for a period not less than six years but not more than twelve years as may be determined by the Minister, by Order published in the Gazette, if the amount of the investment made by such company in such undertaking is not less than one thousand million rupees. Such period shall be reckoned, from the year of assessment in which the undertaking commences to make profits or any year of assessment not later than two years reckoned from the date on which the undertaking commences to carry on of commercial operations, whichever is earlier.

[S 21B(1) am by s 5 of Act 19 of 2003.]

(2) For the purposes of subsection (1) “specified undertaking” in relation to company means an undertaking carried on by such company on or after April 1, 2002 and which is engaged in any such activity relating to infrastructure development as may be determined by the Minister by Order published in the Gazette, having regard to the interests of the national economy.

[S 21B ins by s 13 of Act 10 of 2002.]

21C. Exemption from income tax of small scale infrastructure industries.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assest) of any company from any undertakings. specified undertaking referred to in subsection (2), shall be exempt from income tax, for a period of live years, reckoned from the year of assessment in which the undertaking commences to make profits or any year of assessment not later than two years reckoned from the date of commencement of commercial operations, whichever is earlier.

(2) For the purposes of subsection (1) “specified undertaking” in relation to a company means an undertaking carried on by such company on or alter April 1, 2002, and which is engaged in infrastructure development for the generation of power, tourism, recreation, ware housing and cold storage, garbage collection or disposal, construction of houses or construction of hospitals, and the total amount invested within one year from the commencement of the undertaking is not less than rupees ten million hut not exceeding rupees fifty million.

[S 21C ins by s 6 of Act 19 of 2003.]

21D. Exemption from income tax of any company engaged in research and development.

The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of company capital assest) of any new undertaking of a company which is engaged solely in research and development with an investment of not less than rupees two million made within one year from the commencement of such undertaking, shall be exempt from income tax for a period of five years, reckoned from the year of assessment in which the undertaking commences to make profits or any year of assessment not later than two years, reckoned from the date on which the undertaking commences to carry on of commercial operations whichever is earlier.

For the purposes of this section “research and development” means any systematic or intensive study carried out in the field of science and technology with the object of using the results thereof for the production or improvement of materials, devices, products, produce or process (other than quality control of products or routine testing materials, devices, products or produce research in social sciences or humanities, routine data collection, efficiency surveys or management studies and market research or sales promotion).

[S 21D ins by s 6 of Act 19 of 2003; am by s 10 of Act 12 of 2004.]

21E. Exception from income tax of any company acquiring non-performing business enterprise.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits from the sale of capital assest) of a company which acquires a non-performing or underperforming business enterprise engaged under in a specific area of activity, to rehabilitate such enterprise subject to terms approved by the Minister and subject to adequate provision being made to meet the statutory liabilities outstanding at the time of acquisition of such enterprise, shall be exempt from income tax for a period of three years, where the acquisition has been completed and commercial operations have commenced on or before March 31, 2004.

(2) The period of three years referred to in subsection (1) shall be reckoned from—

(a) the year of assessment in which the business that is acquired commences to make profits; or

(b) any year of assessment not later than two years reckoned from the date on which the business that is acquired commenced commercial operations,

whichever is earlier.

[S 21E(2) subs by s 11(1) of Act 12 of 2004.]

“acquires” means—

(i) acquiring the ownership of the enterprise as an owner;

(ii) acquiring not less than fifty one per centum of the ownership of the enterprise with management rights or as partner or a joint venture partner; or

(iii) acquiring the business (including the assest, liabilities and employees) other than by way of acquiring the shares of such enterprise, by way of a Deed.

[“acquires” subs by s 11(2) of Act 12 of 2004.]

“rehabilitation” means the recommencement of commercial operations of the enterprise on a sustainable basis;

“specific area” means the manufacture of textiles, poultry, farming, fish rearing or any other area as may be determined by the Minister by Order published in the Gazette;

“non-performing’ means the failure to carry out commercial operations;

“under performing” means the incurring of operational losses for a period not less than two consecutive years of assessment.

[S 21E ins by s 6 of Act 19 of 2003.]

21F. Exemption from income tax of any company engaged in non-traditional products for exports which undertakes expansion.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits from the sale of capital assest) company engaged in of any company which has an undertaking which non-traditional is the manufacture and export of products for and undertakes expansion exports which of its manufacturing undertaking of such undertakes expansion products with an investment of not less than rupees ten million, shall be exempt from income tax for a period of two years where the full investment has been made on or before March 31, 2004, in respect of such expansion.

[S 21F(1) am by s 12 of Act 12 of 2004.]

(2) The period of two years referred to in subsection (1), shall be reckoned where the undertaking, which engages in expansion—

(a) is qualified for an exemption from income tax on the export of non-traditional products, from the date on which such exemption period is due to expire; or

(b) other than an undertaking referred to in paragraph (a) from the date on which each undertaking commences to any on commercial operations.

For the purposes of this section “export of non-traditional products” means the export of any goods, including deemed export of any goods within the meaning of section 49 other than goods referred to in sub-paragraph (ii) of paragraph (b) of section 52 not less than eighty per centum of the total turnover of such undertaking for any year of assessment.

[S 21F ins by s 6 of Act 19 of 2003.]

21G. Exemption from income tax of profits and income from expansion of undertakings engaged in the manufacture or production of traditional exports or non-exportable goods.

(1) The profits and income attributable to the expansion of any company, which is engaged in the manufacture and income from or production of traditional exports or non-exportable goods and which undertakes the expansion of any undertaking for the production engaged in thereof manufacture of such traditional export or non-exportable goods with an investment of not less of traditional than rupees ten million, shall be exempt from exports or income tax for a period of two years where the full investment in relation to such expansion has exportable goods been made on or before March 31 2004.

(2) The period of two years referred to in subsection (1) shall be reckoned from the year of assessment in which the expansion of such undertaking commences to make profits or from April 1, 2006, whichever is earlier.

For the purposes of this section “profits and income attributable to the expansion of any undertaking” means the excess of profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assest) from the production and manufacture of traditional exports or non-exportable goods during any year of assessment which is qualified for tax exemption over the annual average of the profits of such undertaking, such average, being computed taking into consideration the total profits for the period of three years immediately preceding the year of assessment in which such tax exemption period commenced.

[S 21G ins by s 6 of Act 19 of 2003.]

21H. Exemption from income tax of any venture capital company.

(1) The profits and income with the meaning of paragraph (a) of section 3 (other than profits and income from the sale of any capital asset within the meaning of paragraph (b) of subsection (7) of section 23) of any venture capital company shall be exempt from income tax for a period of five years commencing from the year of assessment in which the company commences to carry on commercial operations, where such company invests a sum of money as specified in subsection (2), which investment shall be identified as a specific investment, for the purchase of ordinary shares in a company engaged in—

(i) a project which is of a pioneering nature and the operation of which results in value addition and the promotion of economic development;

(ii) a project which is engaged in the business of information technology;

(iii) a project which is connected to the rehabilitation of non-performing or under-performing industries within the meaning of section 21E; or

(iv) any other project as may be specified by the Minister by Order published in the Gazette.

and such investment shall be for the financing of seed capital or start up or early stage financing of the invested company:

Provided however—

(a) the venture capital company shall not have commenced commercial operations prior to April 1, 2003; and

(b) the specific investment shall not be made in relation to a company which is at the time of making the first investment an associate company.

[S 21H(1) proviso(b) am by s 13(1) of Act 12 of 2004.]

(2) In order to qualify for the tax exemption provided for in subsection (1), the venture capital company shall have invested a sum—

(i) not less than forty per centum of the total equity capital of such company during the second year from the year in which such company commenced its commercial operations, on or before the end of that second year;

(ii) not less than eighty per centum of the total equity capital of such company during the third year from the year in which such company commenced its commercial operations, on or before the end of that third year;

(iii) not less than eighty per centum of the total equity capital of such company during the fourth and fifth years from the year of commencement of commercial operations, on or before the end of such fourth and fifth years respectively.

in any project specified in subsection (1):

Provided that if a company which has claimed exemption under this section fails to comply with the provisions of this subsection, or any dividends have been declared during the first two years from the year of assessment in which the company commences to carry on commercial operations or more than twenty per centum of the total specific investment made in any year has been made in one or more associate companies of such venture capital company, the exemption afforded to such company shall be withdrawn and the assessment shall be issued for the relevant years.

[S 21H(2) proviso am by s 13(2) of Act 12 of 2004.]

(3) Investments may be made in foreign companies, and such investments shall be considered as a specific investment for the purpose of this section, in the second year and thereafter where such investment is not more than ten per centum of equity capital of such company during the second year and not more than twenty per centum of equity capital of such company during the third year and subsequent year respectively, from the year in which such company commences its commercial operations.

(4) During the first three years include in which such company commences its commercial operations any equity capital in excess of the minimum investments required by the subsection (2) may be invested in Government securities and such investment shall be considered as specific investment.

(5) For the purposes of this section “a venture capital company” means any company registered under the Companies Act, No. 17 of 1982 with a minimum issued share capital of rupees one hundred million and which is engaged in the business of providing equity investment in relation to any project as is specified in subsections (1), (2), (3) and (4); and—

(i) which has entered into a Technical Service Agreement a management company possessing the required experience in the relevant area of investment; or

(ii) which has in its employment, professional staff who have been trained by foreign venture capital companies and other local staff possessing the required professional venture capital management experience.

(6) The year of commencement of commercial operations for the purpose of this section, shall be the year in which the issued equity capital of the venture capital company has reached rupees one hundred million and shall not apply in respect of commercial operations commencing on or after April 1, 2008.

[S 21H ins by s 10 of Act 37 of 2003.]

(7) For the purposes of this section “associate company” means any company within a group of companies which includes a parent company and all its subsidiaries where the parent company has one or more subsidiaries and such subsidiaries are controlled by the parent company either by appointing a majority of the Board of Directors of such subsidiary or by holding more than one half in nominal value of the equity share capital of such subsidiary.

[S 21H(7) ins by s 13(3) of Act 12 of 2004.]

21I. Exemption from income tax of any person engaged in the business of providing Manor Houses or Thematic Bungalows to tourists.

(1) the profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assest) of any person engaged in business as specified in section 2 shall be exempt from income tax, for a period of three years commencing from the year of assessment in which such person commences to make profits in such business or any year of assessment not later than two years reckoned from the date of commencement of commercial operation, whichever is earlier.

(2) The provisions of subsection (1) shall apply to any person registered with the Ceylon Tourist Board established by the Ceylon Tourist Board Act, No. 10 of 1966 on or after April 1, 2003 under the scheme for providing accommodation to tourist in Manor Houses or Thematic Bungalows for a period of ten years from the date of registration.

[S 21I ins by s 10 of Act 37 of 2003.]

22. Power of Commissioner-General to recommend cancellation of approval granted under section 17.

Where the Commissioner-General is satisfied that any company approved by the Minister under section 17 has not taken any step to commence business within a period of one year from the date on which the Minister has approved such company, he shall recommend to the Minister that such approval be cancelled, and upon such recommendation, the Minister may having regard to the interests of the economy, by Order published in the Gazette cancel such approval.

22A. The profits and income of a person making a declaration under section 2 of the Inland Revenue (Special Provisions) Act, No. 7 of 2002 shall not be exempted from income tax.

Notwithstanding anything contained in this Act, the profits and income within the meaning of paragraph (a) of section 3 of any person who makes a declaration under section 2 of the Inland Revenue (Special Provisions) Act, No. 7 of 2002 shall not be exempted from income tax for any year of assessment commencing on or after April 1, 2003.

[S 22A ins by s 14 of Act 10 of 2002.]

CHAPTER IV

Ascertainment of Profits or Income

23. Ascertainment of profits or income.

(1) Subject to the provisions of subsections (2) and (4) there shall be deducted for the purpose of ascertaining the profits or income of any person from any source, all outgoings and expenses incurred by such person in the production thereof, including

(a) an allowance equal to the sum expended by such person in the purchase of any implement or equipment for any undertaking of deep sea or off-shore fishing carried on by such person, for any year of assessment commencing on or before April 1, 2003;

[S 23(1)(a) am by s 14(1)(a) of Act 12 of 2004.]

(b) for any year of assessment commencing on or before April 1, 2003, an allowance for depreciation by wear and tear of;

[S 23(1)(b) am by s 14(1)(b) of Act 12 of 2004.]

(i) any plant, machinery or fixtures (other than plant, machinery or fixtures referred to in sub-paragraph (ii) or sub-paragraph (iii) or (vi), acquired by such person and arising out of their use. in any trade, business, profession or vocation, carried on or exercised, by such person at the rate of fifty per centum per annum, on its cost of acquisition;

[S 23(1)(b)(i) am by s 15(1) of Act 10 of 2002.]

(ii) any motor vehicle, lorry, bus, tractor or trailer (other than any motor coach referred to in sub-paragraph (iii)), or any office furniture acquired by such person and arising out of its use. in any trade, business, profession or vocation carried on or exercised, by him, at the rate of twenty-five per centum per annum on its cost of acquisition;

(iii) any motor coach acquired by such person and used in any trade, business, profession or vocation, in transporting employees of such trade, business, profession or vocation to or from their place of work, at the rate of one hundred percent tint of “its cost of” acquisition;

[S 23(1)(b)(iii) subs by s 7(1) of Act 19 of 2003.]

(iv) any qualified building constructed by such person and arising out of its use in any trade. business. profession or vocation earned on or exercised by him. at the rate of six and two third per centum per annum on its cost of construction;

(v) any unit of non-residential accommodation comprised in a registered Condominium Property within the meaning of the Apartment Ownership Law, No. 11 of 1973 acquired by such person and arising out of its, use in am trade, business, profession or vocation carried on or exercised by him at the rate of six and two third per centum per annum on its cost of acquisition;

(vi) any computer hardware acquired by such person on or after April 1, 2002 and arising out of its use in any trade, business, profession or vocation carried on or exercised by him at the rate of one hundred per centum on its cost of acquisition;

[S 23(1)(b)(vi) ins by s 15(2) of Act 10 of 2002.]

Provided that no deduction under the preceding provisions of this paragraph shall be allowed to a person in respect of any capital assest referred to in sub-paragraph (i), or sub-paragraph (d), or sub-paragraph (iii) or sub-paragraph (iv) or sub-paragraph (v) or this paragraph, in respect of which the total of the allowances granted for depreciation in the preceding years of assessments is equal to the cost of acquisition or the cost of construction, as the case may be of such capital asset;

(bb) an allowance for depreciation by wear and tear of the following assest acquired, constructed or assembled and arising out of their use on or after April 1, 2004, by such person in any trade, business, profession or vocation carried on by him—

(i) information technology equipments and calculating equipment including accessories acquired or assembled by such person and software, acquired by such person, at the rate of twenty five per centum per annum on the cost of acquisition or assembling of such equipments, as the case may be:

Provided that in the case of software acquired on or after April 1, 2005—

(A) where such software is a software developed in Sri Lanka, the rate shall be one hundred per centum; and

(B) where such software is other than software developed in Sri Lanka the rate shall be twenty five per centum;

[S 23(1)(bb) am by s 14(1)(a) of Act 8 of 2005.]

(ii) any motor vehicle or furniture acquired by such person, at the rate of twenty per centum per annum, on the cost of acquisition;

(iii) any other machinery or equipment not referred to in sub paragraphs (i) and (ii) above and any plant acquired or assembled by such person, at the rate of twelve and one half per centum per annum, on the cost of acquisition or assembly;

(iv) any intangible assest (other than goodwill) acquired by such person, at the rate of ten per centum per annum, on the cost of acquisition;

(v) any bridge, railway, reservoir, electricity or water distribution line and toll roads constructed by such person or acquired from a person who has constructed such assest during the period of such ownership, at the rate of six and two third per centum per annum, on the cost of construction or cost of acquisition as the case may be;

(vi) any qualified building, any unit of a condominium property acquired which is approved by the Urban Development Authority established fey the Urban Development Authority Law, No. 41 of 1978, and constructed to be used as a commercial unit or any hotel building (including a hotel building complex) or any industrial building (including an industrial building complex) acquired from a person who has used such buildings in any trade or business, at the rate of six and two third per centum per annum, on the cost of construction or cost of acquisition, as the case may be:

[S 23(1)(bb)(vi) subs by s 14(1)(b) of Act 8 of 2005.]

Provided that no deduction under the preceding provisions of this paragraph shall be allowed to a person in respect of any capital asset referred to in sub-paragraphs (i), (ii), (iii), (iv), (v) or (vi) of this paragraph in respect of which the total of the allowances granted for depreciation in the preceding years of assessment is equal to the cost of acquisition or cost of construction or assembling, as the case may be, of such capital asset by such person;

[S 23(1)(bb) ins by s 14(1)(c) of Act 12 of 2004;
proviso am by s 14(1)(c) of Act 8 of 2005.]

(c) A sum equal to—

(i) one-tenth of any payment made for any year of assessment commencing prior to April 1, 2002;

(ii) one-fourth of any payment made for any year of assessment on or after April 1, 2002;

[S 23(c)(ii) subs by s 7(2) of Act 19 of 2003.]

by such person as consideration for obtaining a licence, in his favour, of any manufacturing process used by such person in any trade or business carried on by such person;

[S 23(1)(c) am by s 15(3) of Act 10 of 2002.]

Provided that no deduction under the provisions of this paragraph shall be allowed to any person in respect of any such payment if the total of the sums deducted in the preceding years of assessment is equal to the amount of such payment:

(cc) a sum equal to one-fourth of any payment made by such person in any year of assessment commencing on or after April 1, 2002 but on or before March 31, 2004, in the acquisition of any intangible asset such as a patent, copyright or trade mark (other than any goodwill) used by him in any trade or business carried on by him:

Provided that no deduction shall be allowed to any person under this paragraph in respect of any such payment if the total of the sum deducted in the preceding years of assessment is equal to the amount of such payment;

[S 23(1)(cc) ins by s 15(4) of Act 10 of 2002;
am by s 14(1)(d) of Act 12 of 2004.]

(d) an allowance in respect of any computer software acquired by him during the period of which the profits and income are being ascertained and used by him in any trade, business, profession, or vocation carried on or exercised by him, such allowance being—

(i) in the case of the year of assessment commencing prior to April 1, 2002, an amount equal to fifty per centum;

(ii) in the case of every year of assessment commencing on or after April 1, 2002, an amount equal to one hundred per centum,

[S 23(1)(d) am by s 15(5) of Act 10 of 2002.]

of the cost of acquisition of such computer software on or before March 31, 2004:

Provided that no deduction under the preceding provisions of this paragraph shall be allowed to any person in respect of any computer software if the total of the allowances granted in the preceding years of assessment in respect of such computer software is equal to the cost of acquisition of such computer software;

[S 23(1)(d) am by s 14(1)(e) of Act 12 of 2004.]

(e) any sum expended by such person for the renewal of any capital asset employed by such person for producing such profits or income, if no allowance for the depreciation thereof is deductible in respect of that asset;

(f) any sum expended by such person for the repair (not renewal) of any plant, machinery, fixtures, building, implement, utensil or article employed for producing such profits and income:

Provided that the sum deductible under this sub-paragraph shall, in the case of a company carrying on the business of letting premises for commercial purposes—

(i) for any year of assessment commencing prior to April 1, 2002, not exceed ten per centum;

(ii) for any year of assessment commencing on or after April 1, 2002, insofar as it relates to the repairs of such premises, not exceed twenty-five per centum,

[S 23(1)(f)provisions by s 14(1)(f) of Act 12 of 2004.]

Provided further that for any year of assessment commencing on or after April 1, 2004, the provisions of sub-paragraph (ii) above, shall be applicable to the business of letting any premises;

of the gross rent receivable by such company for such premises;

[S 23(1)(f) proviso subs by s 15(6) of Act 10 of 2002.]

(g) a sum equal to the bad debts representing the supply of goods or services by such person on credit incurred by such person in any trade, business, profession, vocation or employment which have become bad debts during the period for which the profits are being ascertained and such sum as the Commissioner-General considers reasonable for doubtful debts to the extent that they are estimated to have become bad during that period, notwithstanding that such bad or doubtful debts were due and payable prior to the commencement of that period:

[S 23(1)(g) am by s 14(1)(g)(i) of Act 12 of 2004.]

Provided that all sums recovered during that period on account of the amounts previously written off or allowed in respect of bad or doubtful debts shall for the purposes of this Act be treated as receipts of that period of that trade, business, profession, vocation or employment and for the purpose of this proviso, sums recovered shall be deemed to include any reduction as at the last date of such period in any estimated amount of a doubtful debt previously allowed as a deduction;

[S 23(1)(g) proviso am by s 14(1)(g)(ii) of Act 12 of 2004.]

(h) interest paid or payable by such person;

(i) any contribution by an employer, to a pension. provident or savings fund, or to a provident or savings society, which is approved by the Commissioner-General subject to such conditions as he may specify;

(j) —

(i) any turnover tax payable under the Turnover Tax Act, No. 69 of 1981 less any deduction allowable under section 47 or section 48 or section 48A of that Act; or

(ii) tax corresponding to turnover tax referred to in sub-paragraph (i) and payable, under any statute enacted by any Provincial Council.

which such person is liable to pay for the period for which the profits and income are being ascertained in respect of any trade, business, profession or vocation carried on or exercised by him:

Provided that where at the time of making any assessment it appears to an Assessor that any such tax so payable has not been paid, he may refuse to allow any deduction in respect of such tax:

Provided further that where it appears to an Assessor that any such tax in respect of which a deduction has been refused, has been paid within a period of three years from the end of the year of assessment to which such assessment relates, he shall, on an application made in writing within twelve months of making such payment and supported by such proof as he may require make an amended assessment allowing such deduction notwithstanding the provisions of section 142, and any tax found to have been paid in excess as a result of such amended assessment shall be refunded notwithstanding the provisions of section 169;

(k) the expenditure incurred in any year of assessment commencing on or after April 1, 2000 but prior to April 1, 2002, by such person in carrying on any scientific, industrial or agricultural research for the development of the trade or business carried on by such person;

[S 23(1)(k) am by s 15(7) of Act 10 of 2002.]

(kk) the expenditure including capital expenditure incurred in any year of assessment commencing on or after April 1, 2002 by such person in carrying on any scientific, industrial, agricultural or any other research for the upgrading of any trade or business carried on by such person;

[S 23(1)(kk) ins by s 15(8) of Act 10 of 2002.]

(l) any expenses incurred by such person in

(i) opening up any land for cultivation or for animal husbandry; or

(ii) cultivating such land with plants of whatever description; or

(iii) the purchase of livestock or poultry to be reared on such land; or

(iv) the construction of tanks or ponds or the clearing or preparation of any inland waters for the rearing of fish and the purchase of fish to be reared in such tank, pond or inland waters, as the case may be;

(m) the actual expenses incurred by such person or any other person in his employ in traveling within Sri Lanka in connection with the trade, business profession or vocation of the first-mentioned person:

Provided that no deduction under the preceding provisions of this paragraph shall be allowed to any person—

(ia) in respect of expenses incurred in relation to a vehicle used partly for the purposes of his trade, business, profession or vocation and partly for the domestic or private purposes of an executive officer being employed by him or a non-executive director of such organisation, unless the value of the benefit as specified under the proviso to paragraph (b) of subsection (2) of section 4 of this Act has been included in the remuneration of such officer, for the purposes of deduction of income tax under Chapter XIV of this Act:

[S 23(1)(m)(ia) ins by s 14(1)(h) of Act 12 of 2004.]

(ib) in respect of expenses incurred in relation to a vehicle, where more than one vehicle is provided to any employee or such person or to any non-executive director or to any other individual who is not an employee but rendering services in the trade, business profession or occupation carried on by such person if such vehicle is not the first vehicle provided to such employee, or non-executive director or such other individual, as the case may be;

[S 23(1)(m)(ib) ins by s 14(1)(h) of Act 12 of 2004.]

(ic) in respect of expenses incurred in relation to a vehicle where such vehicle is provided to any other person who is not an employee of such person and who does not render any services to the trade, business, profession or vocation carried on by such person.

[S 23(1)(m)(ic) ins by s 14(1)(h) of Act 12 of 2004.]

(id) in respect of expenses incurred in relation to the reimbursement of any expenditure on a vehicle belonging to an employee of such person who has been allowed by the employer to claim such expenses, unless the value of benefit of using such vehicle for non-business purposes by such employee as determined by the Commissioner General has been included in the remuneration of such employee for the purposes of deduction of income tax under Chapter XIV or in the opinion of the Commissioner-General such amount that is reimbursed represents only expense on allowable traveling expenses in relation to the trade business, profession or vocation carried on by such employer,

For the purposes of sub-paragraphs (ia), (ib), (ic) and this sub-paragraph the “expenses incurred” shall not include any lease rental or other rental payment in respect of such vehicle or the cost of acquisition or the cost of financing of the acquisition of such vehicle—

[S 23(1)(m)(id) ins by s 14(1)(h) of Act 12 of 2004;
proviso am by s 14(2) of Act 8 of 2005.]

(ii) in respect of any expenses incurred by such person by reason of any traveling done by any other person in his employ between the residence of such other person and his place of employment or vice versa;

(n) in the case of a company, expenditure incurred in the formation or liquidation of that company;

[S 23(1)(n) am by Sch of Act 8 of 2001.]

(o) the expenditure incurred by such person in operating a motor coach used for transporting employees of such person to and from their place of work;

(p) the expenditure incurred by such person in the payment of gratuity to an employee on the termination of employment of such employee due to cessation of the trade, business, profession or vocation carried on by such person;

(q) any annual payment made by such person to any fund, approved for the purposes of this paragraph, by the Commissioner-General and maintained for the purposes of payment, under the Payment of Gratuity Act, No. 12 of 1983, of gratuities to employees on the termination of their services;

(r) such part of the lump sum payment, which not being an advance payment made by such person to any other person in connection with the letting, or lease, to the first-mentioned person of any commercial premises as bears to the total lump sum payment the same proportion as the number of months in the year for which lease rent is payable bears to the total number of months comprised in the lease;

[S 23(1)(r) am by s 14(1)(i) of Act 12 of 2004.]

(s) any sum paid on or before March 31, 2004, by a public corporation or Government Owned Business Undertaking as a special levy, to the Government.

[S 23(1)(s) am by s 14(1)(j) of Act 12 of 2004.]

(t) expenditure incurred by any person in the training, in any recognised institution for a period not exceeding sixty days, of any employee employed by such person in any trade or business carried on by such person, if it is proved to the satisfaction of the Commissioner-General that such training is

(i) directly relevant to the duties performed by such employee before the commencement of such training;

(ii) essential for upgrading the skills or performance of such employee, in such trade or business; and

(iii) necessary for improving the efficiency and performance of such trade or business;

Provided that any expenditure incurred in any year of assessment commencing on or alter April 1, 2002 by such person in training shall be deductible, irrespective of the length of the period of training.

[S 23(1)(t)(iii) am by s 15(9) of Act 10 of 2002.]

For the purposes of this paragraph.

(A) “training” includes participation in any seminar or workshop,

(B) “employee” includes any partner of any partnership carrying on a profession.

(2) Where any person is entitled to a deduction in respect of any outgoing or expense under two or more paragraphs of subsection (1), in ascertaining the profits and income of such person from any source such person shall be allowed a deduction only under one such paragraph.

(3) Subject to provisions of subsection (3A), where any person is disposes of any capital asset used by him in producing the profits and income of any trade, business, profession or vocation carried on or exercised by him whether such profits and income are fully or partly exempt from income tax; and

[S 23(3) am by s 14(2) of Act 12 of 2004.]

(a) an allowance for depreciation equal to the cost of acquisition or the cost of construction, as the case may be, of such capital asset has been granted in respect of that capital asset, such part of the proceeds of disposal as is not in excess of the cost of acquisition or the cost of construction, as the case may be. of such capital asset shall, whether such disposal takes place while such trade, business, profession or vocation continues or after its cessation. be treated as a receipt of such trade, business. profession or vocation, in ascertaining the profits and income, within the meaning of paragraph (a) of section 3, of such trade, business, profession or vocation;

(b) an allowance for depreciation has been granted in respect of that capital asset but the total amount of such allowance is less than the cost of acquisition or the cost of construction, as the case may be. of such capital asset the proceeds of disposal as is not in excess of the cost of acquisition or the cost of construction as the case may be of such capital asset over the difference between the cost of acquisition or the cost of construction, as the case may be, of such capital asset and the total allowance for depreciation granted in respect of such capital asset shall whether such disposal takes place while such trade, business, profession or vocation continues or after its cessation, be treated as a receipt of such trade, business, profession or vocation, in ascertaining the profits and income of such trade business, profession or vocation within the meaning of paragraph (a) of section 3;

Provided that where such difference exceeds the proceeds of such disposal, the excess shall be treated for the purposes of subsection (1) as an expense incurred in the production of income:

Provided further that nothing in this paragraph shall apply to

(a) the transfer of any such capital asset to a company referred to in section 34(1)(a)(xv) on the conversion of a business carried on by an individual either solely or in partnership to such company; or

(b) the disposal by any person, of any such capital asset, if the full proceeds of disposal are used by such person, within one year of the disposal for the replacement of such capital asset to be used by him for producing income in any trade business profession, vocation or employment carried on or exercised by him; or

(c) where a person carrying on any undertaking the profit and income of which are wholly or partly exempt from income tax under this Act, disposes of any capital asset used for the purposes of that undertaking, such person shall be liable to income tax on an amount equal to the amount ascertained under paragraph (a) or paragraph (77).

(3A) Where a disposal takes place under the provisions of subsection (3) on or after April 01, 2004, the total proceeds of the disposal shall be taken into account in calculating such receipt or expenditure, as the case may be, from such trade, business, profession or vocation.

[S 23(3a) ins by s 14(3) of Act 12 of 2004; re-numbered as S 23(3A) by s 14(3) of Act 8 of 2005.]

(4) Subject as hereinafter provided, income arising from interest shall be the full amount of interest falling due whether received or not without any deduction for outgoing or expenses:

Provided that—

(a) where it appears to an Assessor that any interest is unpaid and cannot be recovered, any assessment which includes such interest shall, notwithstanding the provisions of section 142, be reduced by the amount of the interest included which has been shown to be unpaid and irrecoverable or, if income tax has been paid in respect of such interest, such tax may be refunded on a claim in writing made within three years of the end of the year of assessment in respect of which such tax was paid;

(b) where any interest falling due in any year of assessment in respect of a loan has not been received and is likely to be irrecoverable, the person to whom such interest is due may exclude such interest from the profits and income chargeable with income tax for that year of assessment;

(c) where it appears to an Assessor that am interest which has been excluded from an assessment under paragraph (b) has subsequently been received and that income tax has not been paid in respect of such interest, he shall, notwithstanding anything in subsection (5) of section 134 limiting the period within which an assessment, or additional assessment may be made, make an assessment or additional assessment including such interest.

(5) No deduction under paragraph (a) or paragraph (b) or paragraph (bb), or paragraph (c) or paragraph (d), or paragraph (e), or paragraph (f), or paragraph (g), or paragraph (h) of subsection (1) in respect of any capital asset shall be allowed to any person if—

[S 23(5) am by s 14(4) of Act 12 of 2004.]

(a) such person has let on hire such capital asset

(i) to any undertaking the whole or any pant, of the profits and income within the meaning of paragraph (a) of section 3 of which are exempt from income tax; or

(ii) for the use in any undertaking carried on by the person from whom it was acquired or by any member of the family of that person or any member of his family in partnership with any other person or persons; or

(b) such person uses such capital asset in any undertaking carried on by him in partnership with the person from whom it was acquired or with any member of the family of the person from whom it was acquired:

Provided that the provision of sub paragraph (i) of paragraph (a) shall not apply in respect of any capital asset let on hire by any person if such person is a company engaged in the business of letting capital assest on hire.

(6) The profits and income received by one spouse for services rendered in am trade, business, profession or vocation earned on or exercised

(a) by the other spouse; or

(b) by a partnership of which that other spouse is a partner.

shall be deemed to be the profits and income of that other spouse.

(7) For the purposes of this section—

(a) “allowance for depreciation”, in relation to any capital asset, means any allowance which shall be deducted in respect of that asset under

(i) paragraph (a), paragraph (b), paragraph (bb) or paragraph (d) of subsection (i) of this section.

[S 23(7)(a)(i) am by s 14(5)(a) of Act 12 of 2004.]

(ii) paragraph (a) or paragraph (b) or paragraph (c) or paragraph (d) or paragraph (e) or paragraph (ee) or paragraph (eee) or paragraph (eeeee) of subsection (1) of section 23 of Act, No. 28 of 1979;

(iii) paragraph (a) or paragraph (h) or paragraph (i) or paragraph (1) or paragraph (m) or paragraph (n) or paragraph (o) or paragraph (p) of subsection (1) of section 10 of the Inland Revenue Act, No. 4 of 1963; or

(b) “capital asset” in relation to a trade, business, profession or vocation means plant, machinery, fixture, fittings, utensils, articles or equipment or any bridge, railway, reservoir electricity or water distribution line, toll roads used for the purpose of producing the income in such trade business, profession or vocation or building constructed for the purposes of such trade, business, profession or vocation;

[S 23(7)(b) am by s 14(5)(b) of Act 12 of 2004.]

(c) “proceeds” in relation to the disposal of any capital asset means

(i) the sale price of such asset, where the disposal is by sale; or

(ii) the market value of such asset at the time of disposal, where the disposal is otherwise than by sale.

after deducting from such sale price or market value, as the case may be, the amount of goods and services tax chargeable under the Goods Services Tax Act, No. 34 of 1996, on the disposal of such capital asset if such tax is included in such sale price or market value, as the case may be—

(d) “disposal”, in relation to the disposal of any capital asset by any person includes

(i) sale, exchange, or other transfer in any manner whatsoever or of such asset by such person;

(ii) discard of such asset by such person;

(iii) cessation of the use of such asset by such person in any undertaking carried on by him in ascertaining the profits and income of which, an allowance for depreciation could be deducted;

(e) “qualified building” means a building constructed to be used for the purpose of a trade, business, profession or vocation other than to be used as a dwelling house by an executive officer employed in that trade, business, profession or vocation;

(f) —

(i) where any capital asset which is used in any trade, business, profession or vocation carried on or exercised by any person and in respect of which an allowance for depreciation has been granted is sold, and the full proceeds of sale used, within one year of the sale, for the acquisition of another capital asset to replace the capital asset so sold, and to be used in such trade, business, profession or vocation, the cost of acquisition of such other capital asset shall be deemed to be the difference between the actual cost of acquisition of such other capital asset and the profits from the sale of the capital asset sold:

For the purposes of this sub-paragraph the profits from the sale, in relation to any capital asset, shall be the excess of the proceeds of sale of such asset over the difference between

(a) the cost of acquisition or the cost of construction, as the case may be, of such asset; and

(b) the total allowance for depreciation granted in respect of such capital asset;

(ii) where any plant, machinery or fixtures is acquired otherwise than by way of purchase, by any person to be used in any trade, business, profession or vocation carried on or exercised by him. the cost of acquisition of such plant, machinery or fixtures shall be the market value of such plant, machinery or fixtures, on the date of such acquisition;

(iii) where any capital asset of a business earned on by an individual, either solely or in partnership with others, is transferred, to a company which is incorporated mainly for the acquisition of the assest of that business, the cost of acquisition of such capital asset by such company shall be deemed to be the cost of acquisition of such capital asset by such individual or partnership reduced by the amount of any allowance for depreciation granted in respect of such asset to such individual or partnership and the date of acquisition of such capital asset shall be deemed to be the date of acquisition of such capital asset by such individual or partnership;

[S 23(7)(f)(iii) am by s 14(5)(c) of Act 12 of 2004.]

(iv) where any person is entitled under the Goods and Services Tax Act, No. 34 of 1996, to claim credit for input tax paid in relation to the acquisition or the construction of any capital asset, the cost of acquisition or the cost of construction, as the case may be. of such capital asset shall not include such input tax.

(v) where any asset used in the business of leasing as part of the leasing stock is disposed of subsequently, either by transferring such asset out of the leasing stock or by transferring such stock to the lessee, the market value as at the time of such transfer of such asset shall be deemed to be a receipt from such trade or business of the lessor, unless such lessor proves to the satisfaction of the assessor that all receipts under such lease agreement, including total rentals receivable or received, as the case may be. advance payments received, early settlement fees and all other similar receipts have been considered as taxable receipts in computing profits or income from such business;

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