39.
| (1) Where, in the case of a company controlled by not more than five persons, the Assessor is satisfied that the company has not distributed to its shareholders a reasonable part of its profits for any year of assessment, the Assessor may, subject to the provisions of subsections (2), (3) and (4), treat the whole or a part of the profits of the company, after deducting therefrom any expenditure incurred for the development of the business of the company, (other than the price paid for the purchase of an existing business or an agricultural undertaking), as distributed in the form of dividends to the shareholders of the company on a date specified by the Assessor. |
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| (2) In determining under subsection (1) whether a company has not distributed to its shareholders a reasonable part of its profits, the Assessor shall have regard-
| | (a) to the total amount of its profits ; | | |
| | (b) to the additional assessments, if any, made on the company ; | | |
| | (c) to the current requirements of the company's business ; and | | |
| | (d) to such other requirements as may be necessary or advisable for the maintenance and development of the company's business. | | |
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| (3) For the purposes of subsection (1) any of the following sums shall be regarded as profits available for distribution among the shareholders of the company and hot as having been applied or being applicable to the requirements of the company's business or to such other requirements as may be necessary or advisable for the maintenance and development of that business:-
| | (a) any sum expended or applied, or intended to be expended or applied, out of the profits of the company, in the redemption or repayment of any share or loan capital or debt (including any premium on such share or loan capital or debt) issued or incurred otherwise than for adequate consideration ; | | |
| | (b) any sum lent to a director or shareholder of the company ; and | | |
| | (c) any sum expended or applied, or intended to be expended or applied, in pursuance or in consequence of any fictitious or artificial transactions ; | | |
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| (4) For the purposes of subsection (3), share or loan capital or debt shall be deemed to be issued or incurred otherwise than for adequate consideration if -
| | (a) it is issued or incurred for consideration the value of which to the company is substantially less than the amount of the capital or debt (including any premium thereon) ; or | | |
| | (b) it is issued or incurred in or towards, or for the purpose of raising money applied or to be applied in or towards, the redemption or repayment of any share or loan capital or debt which itself was issued or incurred for Such consideration as is mentioned in paragraph (a) of this subsection or which represents directly or indirectly, any share or loan capital or debt which itself was issued or incurred for such consideration, | | |
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| (5) Where the Assessor under subsection (1) treats the whole or a part of the profits of the company for any year of assessment as distributed in the form of dividends to shareholders Of the company such company shall be liable to pay income tax for that year of assessment on the profits treated as so distributed at the highest rate at which income tax is chargeable for that year upon the taxable income of an individual and such tax shall -
| | (a) be in addition to and not in lieu of any income tax payable by that company under any other provision of this Act, and | | |
| | (b) be assessed and charged upon such company by an Assessor, and the provisions relating to payment and recovery shall apply accordingly. | | |
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| (6) Where a company referred to in subsection (1) is being wound up in pursuance of an order made by a court or a resolution passed on that behalf by the shareholders of the company, then the balance of the income after payment of income tax in the year of assessment in which such Winding-up commences and for each subsequent year of assessment until such Winding-up is completed shall be regarded as income distributed as dividends to such share- holders. |
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| (7) In this section, " company controlled by not more than five persons " means a company in which more than half the total shares issued is held by not more than five persons, their wives or minor children, either directly or through nominees. |
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Sri Lanka Consolidated Acts