25.
| (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 for depreciation by wear and tear of the following assets acquired, constructed or assembled and arising out of their use by such person in any trade, business, profession or vocation carried on by him -
| | | (i) information technology equipments and calculating equipment including accessories and software, acquired by such person, at the rate of twenty five per centum per annum on the cost of acquisition of such equipments, accessories and software, as the case may be; |
| (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, other than any plant referred to in sub-paragraph (v), 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 bridge, railway track, reservoir, electricity or water distribution line and toll roads constructed by such person or acquired from a person who has constructed such assets, 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; |
| (v) any qualified building, any unit of a condominium property acquired and which is approved by the Urban Development Authority established by 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 any 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: |
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| | (b)
| | | (i) a sum equal to one fourth of any payment made 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; |
| (ii) a sum equal to one tenth of the cost of acquisition of any intangible asset, other than goodwill, acquired by such person: |
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| | (c) 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; | | |
| | (d) 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: | | |
| | (e) a sum equal to the bad debts 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 the period, notwithstanding that such bad or doubtful debts were due and payable prior to the commencement of that period: | | |
| | (f) interest paid or payable by such person; | | |
| | (g) 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; | | |
| | (h) tax payable under any Statute enacted by a 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 : | | |
| | (i) the expenditure, including capital expenditure incurred 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 ; | | |
| | (j) any expenses incurred by such person in -
| | | (i) opening up any land for cultivation or for animal husbandry; |
| (ii) cultivating such land with plants of whatever description; |
| (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; |
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| | (k) the actual expenses incurred by such person or any other person in his employment in travelling within Sri Lanka in connection with the trade, business, profession or vocation of the first-mentioned person: | | |
| | (l) in the case of a company, expenditure incurred in the formation or liquidation of that company; | | |
| | (m) 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; | | |
| | (n) 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; | | |
| | (o) 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; | | |
| | (p) 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; | | |
| | (q) expenditure incurred by any person in the training, in any recognized institution 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. |
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| (2) Where any person is entitled to a deduction in respect of any outgoing or expense under two or more paragraphs of subsection (l), in ascertaining the profits and income of such person from any source, such person shall be allowed a deduction only under one such paragraph. |
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| (3)
| | (a) Where any person disposes of any capital asset used by him in producing the profits and income of any trade, business, profession or vocation and a total amount equal to the cost of acquisition or the cost of construction, as the case may be, of such capital asset has been granted as allowance for depreciation of such capital asset, the full amount of the proceeds of such disposal, whether such disposal takes place while such trade, business, profession or vocation continues or on or after its cessation, shall 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. | | |
| | (b) Where any person 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 and 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 excess of the proceeds of such disposal over the difference between the cost of acquisition or the cost of construction 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 : | | |
| | (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 (b). | | |
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| (4) Subject to 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: |
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| (5) No deduction under paragraph (a) or paragraph (b) or paragraph (c), or paragraph (d) of subsection (1) in respect of any capital asset, shall be allowed to any person if -
| | (a) such person has let on hire such capital asset -
| | | (i) to any undertaking the whole or any part 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 |
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| | (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: | | |
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| (6) The profits and income received by one spouse for services rendered in any trade, business, profession or vocation carried on or exercised -
| | (a) by the other spouse; or | | |
| | (b) by a partnership of which that other spouse is a partner, | | |
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| (7)For the purpose of this section -
| | (a) "allowance for depreciation", in relation to any capital asset, means any allowance which is deductible in respect of that asset under -
| | | (i) paragraph (a) of subsection (1) of this section; |
| (ii) paragraphs (a), (b), (bb) or (d) of subsection (1) of section 23 of the Inland Revenue Act; No. 38 of 2000 ; or |
| (iii) paragraphs (a), (b), (c), (d), (e), (ee), (eee) or (eeeee) of subsection (1) of section 23 of the Inland Revenue Act, No. 28 of 1979; |
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| | (b) "capital asset" in relation to a trade, business, profession or vocation means any plant, machinery, fixture, fitting, utensils, articles or equipment 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; | | |
| | (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, |
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| | (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 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; |
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| | (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. |
| (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 a company incorporated to take over the business (including the capital assets) carried on by an individual either solely or in partnership with others, acquires the capital assets of such business being carried on by such individual or partnership, the cost of acquisition of each 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 assets by such company, shall be deemed to be the date of acquisition of such capital asset by such individual or partnership; |
| (iv) where any person is entitled under the Value Added Tax Act, No. 14 of 2002, 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 either by transferring such assets out of the leasing stock or by transferring such asset to the lessee of such asset, 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 sums due from the lessee under the agreement relating to such lease have been treated as taxable receipts, in computing profits or income from such business; |
| (vi) where any person has obtained an asset under a lease agreement and the relevant lease rentals have been allowed to such person as expenditure incurred in any trade, business profession or vocation, either fully or partly, the proceeds of disposal of such asset, less any cost of acquisition other than lease rental paid on such asset by such person acquiring it directly or through a nominee, shall be treated as a receipt from such trade, business, profession or vocation of such lessee; |
| (vii) where any lessee has acquired any asset used by him in any trade, business, profession or vocation, upon the termination of a lease agreement, such acquisition shall not be considered as an acquisition which qualifies for any depreciation allowance under this section, and such asset shall be treated as an asset on which depreciation has been granted to such lessee to the extent of the repayment of the capital value of such asset under such lease agreement by such lessee. |
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Sri Lanka Consolidated Acts