25. Deductions allowed in ascertaining profits and income

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—

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;

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

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;

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;

any qualified building, any unit of a condominium property acquired and which is approved by the Urban Development Authority established by the Urban Development

where any software acquired is software developed in Sri Lanka, the rate shall be one hundred per centum on the cost of acquisition ;

where any plant or machinery acquired is used in any business of providing health care, printing on paper, gem cutting and polishing, packaging of any commodity for commercial purposes, rice milling, or such other business as may be prescribed by the Commissioner-General by Order published in the Gazette, the rate shall be 33 1/3 per centerm on the cost of acquisition ;

(i)

a sum equal to one tenth of the cost of acquisition of any intangible asset, other than goodwill, acquired by such person :

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;

any sum expended by such person for the repair

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:

interest paid or payable by such person;

any contribution by an employer to a pension, provident or savings fund or to a provident or savings society, which is approved by the

tax payable under any Statute enacted by a

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 ;

any expenses incurred by such person in–

opening up any land for cultivation or for animal husbandry;

cultivating such land with plants of whatever description;

the purchase of livestock or poultry to be reared on such land; or

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;

the actual expenses incurred by such person or any other person in his employment in travelling within

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)

in respect of expenses incurred in relation to a vehicle, where more than one vehicle is provided to any employee of 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 vocation 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;

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;

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

in respect of any expenses incurred by such person by reason of any travelling done by any other person in his employment between the residence of such other person and his place of employment or vice versa;

in the case of a company, expenditure incurred in the formation or liquidation of that company;

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;

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;

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

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;

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–

directly relevant to the duties performed by such employee before the commencement of such training;

essential for upgrading the skills or performance of such employee, in such trade or business; and

necessary for improving the efficiency and performance of such trade or business.

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.

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 :

the transfer of any such capital asset to a company formed by the conversion of a business carried on by an individual either solely or in partnership ;

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 or vocation carried on or exercised by him; or

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).

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 171, 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;

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;

where it appears to an Assessor that any 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 163 limiting the period within which an assessment or additional assessment may be made, make an assessment or additional assessment including such interest.

such person has let on hire such capital asset –

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

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

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:

by the other spouse; or

by a partnership of which that other spouse is a partner, shall be deemed to be the profits and income of that other spouse.

“allowance for depreciation”, in relation to any capital asset, means any allowance which is deductible in respect of that asset under-

paragraph (a) of subsection (1) of this section;

paragraphs (a), (b), (bb) or (d) of subsection (1)

paragraphs (a), (b), (c), (d), (e), (ee), (eee) or

“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;

“proceeds” in relation to the disposal of any capital asset means—

the sale price of such asset, where the disposal is by sale; or

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 value added tax chargeable under the Value Added Tax Act, No. 14 of 2002, on the disposal of such capital asset, if such tax is included in such sale price or market value, as the case may be;

“disposal”, in relation to the disposal of any capital asset by any person includes–

sale, exchange, or other transfer in any manner whatsoever of such asset by such person;

discard of such asset by such person;

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;

“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;

(i)

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;

where a company incorporated to take over the business (including the capital assets)

where any person is entitled under the Value

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;

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;

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.