26.
| (1) For the purpose of ascertaining the profits or income of any person from any source, no deduction shall be allowed in respect of -
| | (a) domestic or private expenses, including the cost of travelling between the residence of such person and his place of business or employment; | | |
| | (b) expenses incurred in connection with his employment, other than the expenses referred to in paragraph (e) and paragraph (g) of subsection (l) of section 25; | | |
| | (c) any expenditure incurred in travelling outside Sri Lanka in connection with any trade, business, not being a business referred to in paragraph (d), profession or vocation carried on or exercised in Sri Lanka by such person, other than the expenses incurred in travelling outside Sri Lanka, solely in connection with the -
| | | (i) promotion of the export trade of any article or goods; or |
| (ii) provisions of any services for payment in foreign currency; |
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| | (d) any expenditure incurred in travelling outside Sri Lanka in connection with the business of any undertaking of operating any hotel for tourists, carried on by such person, other than the expenditure incurred in travelling outside Sri Lanka solely in carrying out a programme approved by the Ceylon Tourist Board for the promotion of tourism; | | |
| | (e) entertainment expenses incurred by such person or his employee or on his behalf in connection with any trade, business, profession or vocation carried on or exercised by him; | | |
| | (f) entertainment allowances paid by such person to his executive officer ; | | |
| | (g) any disbursements or expenses of such person, not being money expended for the purpose of producing such profits or income; | | |
| | (h) any expenditure of a capital nature or any loss of capital incurred by such person; | | |
| | (i) the cost of any improvements effected by such person; | | |
| | (j) any sum recoverable under a contract of insurance or indemnity, if the amount received under such contract is not treated as a receipt from such trade, business, profession or vocation under section 89 of the Inland Revenue Act, No. 28 of 1979 or under section 95 of the Inland Revenue Act, No. 38 of 2000 or section 100 of this Act ; | | |
| | (k) rent of, or expenses in connection with, any premises or part of a premises not occupied or used for the purposes of producing such profits and income; | | |
| | (l) any amount paid or payable by such person by way of -
| | | (i) income tax, or super tax or surtax or any other tax of a similar character in any country with which an agreement made by the Government of Sri Lanka for the avoidance of double taxation is in force (other than the excess of any such income tax, or super tax or surtax or any other tax of a similar character over such maximum amount of the credit in respect of Sri Lanka income tax as is allowed by paragraph (c) of subsection (1) of section (97); or |
| (ii) Sri Lanka income tax; or |
| (iii) any prescribed tax or levy; and |
| (iv) any Economic Service Charge levied under Economic Service Charge Act, No. 13 of 2006; |
| (v) any Value Added Tax on Financial Services levied under Chapter IIIA of the Value Added Tax Act, No. 14 of 2002 ; |
| (vi) any Social Responsibility Levy levied under item IV of the First Schedule to the Finance Act, No. 5 of 2005, |
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| | (m) any annuity, ground rent, or royalty paid by such person; | | |
| | (n) any payment by such person to any pension, provident, savings, widows' and orphans' pension, or other society or fund, except such payments as are allowed under paragraph (g) of subsection (l) of section 25; | | |
| | (o)
| | | (i) one half of the excess of any expenditure in relation to any employee where profits from employment under paragraph (a) of subsection (1) of section 4, does not exceed six hundred thousand rupees per year ; and |
| (ii) three fourths of the excess of any expenditure in relation to any employee whose profits from employment under paragraph (a) of subsection (1) of section 4 exceeds six hundred thousand rupees per year, |
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| | (p) such part of the rental paid by him under any finance leasing agreement entered into by him in respect of -
| | | (i) any motor vehicle, furniture, plant, machinery or equipment other than information technology equipment and calculating equipment including accessories and computer software and other computing or calculating machine referred to in paragraph (a) of subsection (l) of section 25, as is in excess of one-fifth of the total rental payable under such agreement; and |
| (ii) any information technology equipment and calculating equipment including accessories and computer software as referred to in paragraph (a) of subsection (l) of section 25, as is in excess of one-fourth of the total rental payable under such agreement; |
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| | (q) any sum transferred to any reserve or provision (other than any annual payment referred to in paragraph (o) of subsection (1) of section 25, for the payment of any sum referred to in subsection (2) of section 35; | | |
| | (r) such part of any sum paid or payable by such person, not being any venture capital company, any unit trust or any mutual fund, as consideration for the management of any trade, business, profession or vocation carried on or exercised by him, as exceeds -
| | | (i) one million rupees or one per centum of the turnover of such trade, business, profession or vocation during the period for which profits and income are being ascertained, whichever is lower or; |
| (ii) such amount as may be determined by the Commissioner-General having regard to all the circumstances of the case, as being reasonable and commercially justifiable as such consideration, |
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| | (s) any expenditure or outgoing in relation to any asset provided by such person to any employee to be used in the residence of such employee; | | |
| | (t) any expenditure or outgoing in relation to any movable or immovable property given by such person to any employee at a price, less than market value at the time of giving such property ; | | |
| | (u) any expenditure or outgoing in relation to any loan, other advance or credit granted to any employee which is subsequently written off as a bad debt by such person ; | | |
| | (v) one half of such person's cost of advertisement in connection with any trade, business, profession or vocation carried on or exercised by him other than the cost of advertisement outside Sri Lanka incurred solely in connection with the export trade of any article or goods or the provisions of any services for payment in foreign currency ; | | |
| | (w) any expenditure incurred in any trade or business carried on in Sri Lanka by any non resident company being expenditure in the nature of head office expenditure, incurred in any period by reference to the profits and income of which the statutory income from such trade or business is computed. | | |
| | (x) the excess, if any, of the aggregate amount of the interest payable for any year of assessment by any subsidiary company (hereinafter referred to as the first mentioned subsidiary company) of any holding company, in respect of any loan obtained from such holding company or any other subsidiary company or subsidiary companies (hereinafter referred to as the second mentioned subsidiary company or subsidiary companies), over such part of the interest so payable, as is attributable to such part of such loan, as is equal to thrice the aggregate of the issued share capital and reserves at the end of that year of assessment of the first mentioned subsidiary company, where such first mentioned subsidiary company is a manufacturer: | | |
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| (2) No person carrying on any trade, business, profession or vocation shall be entitled to any sum for depreciation by wear and tear, or for renewal, or to any allowance under paragraph (a) or paragraph (d) of subsection (l) of section 25:-
| | (a) for any year of assessment, in respect of any vehicle used for travelling for the purpose of his trade, business, profession or vocation, except in respect of -
| | | (i) a motor cycle or bicycle used for such purpose by an officer, who is not an executive officer, in the employment of such person; and |
| (ii) a motor coach used for transporting employees of such person to or from their place of work; and |
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| | (b) in respect of any plant, machinery, fixtures, equipment or articles provided for the use of any officer or employee of such person, in the place of residence of such officer or employee, | | |
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| (3) In ascertaining the profits or income arising from the annual value or rent of land and improvements thereon, no deduction shall be made for outgoing and expenses except those authorized in section 5 or section 6, as the case may be, except in the case of a company carrying on the business of letting premises. |
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| (4) In computing the statutory income of any person from any trade, business, profession or vocation carried on or exercised by such person, no deduction shall be allowed under section 25 or this section or section 27, in respect of any expenditure, unless the amount of such expenditure is paid within three years from the end of the year of assessment in which such expenditure is incurred : |
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Sri Lanka Consolidated Acts