Inland Revenue Act (No. 4 of 1963)

Sri Lanka Consolidated Acts

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Inland Revenue Act (No. 4 of 1963) - Sect 3

Income chargeable with tax

* (1) For the purposes 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 which is not included in paragraphs (a), (b), or (c) of this subsection, 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) any charge or annuity;

	(g) rents, royalties, and premiums;

(h) net capital gains arising from-

(i) the change of ownership of any property occurring by sale, disposal, transfer, realization, exchange, or in any other manner whatsoever, other than any such change of ownership of a fiduciary's rights in a property? subject to a fidei commissum as occurs by a transfer or extinction of those rights, and other than a change of ownership of a right to exploit a property occurring by a transfer of that right, and other than a change of ownership of any motor vehicle in respect of which a deduction for depreciation has not been allowed under section 10 or household effects or other article (excluding jewellery) of personal use,

(ii) the surrender or relinquishment of any right in any property (other than the surrender of a life insurance policy and the surrender, transfer or extinction of a life interest),

(iii) the transfer of some of the rights in any property other than the transfer of the rights of a fiduciary in any property subject to a fidei commissum,

(iv) the loss of any office or employment,

(v) the redemption of any shares, debentures or other obligations,

(vi) the formation of a company,

(vii) the dissolution of a business, or the liquidation of a company,

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

(ix) any transaction in connection with which a person who promotes that transaction without being a party to it receives any commission or reward,

(i) the value of a prize won at a sweep or lottery, other than the value of a prize won on or after May 2, 1963, at any hospitals lottery conducted by the Hospitals Lotteries Board under the Hospitals Lotteries Act, or of a prize won on or after August 16, 1963, at any Industrial Exhibition Sweep conducted by the Government or of a prize won on or after October 1,1963, at any other sweep or lottery; and

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

(2) The racing of horses owned by any person shall, for the purpose of paragraph (a) of subsection (1), be deemed to be a business carried on by that person.

(3) Any loss arising from a business referred to in subsection (2) shall not be deducted from the profits or income from any other source but shall be deducted from the profits or income from that business for the next succeeding year of assessment, and if such deduction cannot be made from the profits or income from that business for such next succeeding year, it shall be made as early as possible from the profits or income from that business for any subsequent year of assessment.

(4) For the purpose of this section-

(a) " profits from any employment ", includes-

(i) any wages, salary, leave pay, fee, pension, commission, bonus, gratuity, perquisite, or such other payment in money which an employee receives in the course of his employment or the value of any benefits to the employee or any member of his family, or any payment to any other person for the benefit of the employee or any member of his family, whether derived from the employer or others, the value of any free conveyance granted by an employer to any employee, any allowance so granted for the purchase of any conveyance, and the value of any holiday warrant or passage, except the value of any holiday warrant or passage granted to a person who is not a citizen of Ceylon to enable him to come to Ceylon to assume duties or to visit his home abroad or to return from Ceylon on the termination of his services, whether on retirement or otherwise, or of any holiday warrant or passage granted to the wife, or any son or daughter, of such person to come to Ceylon or to visit his or her home abroad or to return from Ceylon on the termination of the services of such person;

(ii) any retiring gratuity, any sum received in commutation of pension, any sum paid from a provident fund approved by the Commissioner to an employee at the time of his retirement, other than such part of that sum as represents his contributions to that fund made after April 1, 1954, any sum refunded under section 46 (1) or section 49 of the Widows' and Orphans' Pension Fund Ordinance, and any sum refunded under any regulation relating to any Widows' and Orphans' Pension Fund or Scheme established for the Local Government Service which corresponds to the aforesaid section 46 (1) or section 49;

(iii) the rental value of any place of residence provided rent-free by the employer;

(iv) 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; and

(v) for any year of assessment ending prior to April 1, 1965, any other allowance granted in respect of employment whether in money or otherwise, other than an allowance for travelling, and for any year of assessment commencing on or after April 1, 1965, any other allowance granted in respect of employment whether in money or otherwise, other than an allowance for travelling or entertainment granted by the Government of Ceylon:

(b) the net annual 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 per centum for repairs and other expenses. Where the annual value of any land and improvements thereon or of any place of residence has been assessed for rating purposes by a local authority, such annual value, adjusted as may be necessary in respect of rates paid by the owner and the aforesaid deduction of twenty per centum for repairs and other expenses, shall be the net annual value for the purposes of this section, unless in the opinion of the Commissioner the assessment made by the local authority does not accurately represent the annual value of the land and improvements or place of residence in the year for which the net annual value is being determined. Where the annual value has not been assessed by a local authority, the net annual value shall not in any case exceed five per centum of the capital value of such land and improvements or place of residence;

	(c) the rental value of any place of residence shall be the net annual value as defined in paragraph (b) of this subsection with the addition of rates paid by the owner and twenty-five per centum of such net annual value on account of repairs and other expenses:

(d) the income or profits arising from rents of land and improvements thereon shall be the gross rent which is receivable and can be recovered after deducting rates borne by the owner and, where the owner undertakes to bear the cost of repairs, twenty per centum of the balance, but shall not be less than the net annual value after deducting therefrom any part thereof deemed to be the income of the occupier, due provision being made for any period in respect of which no rent is receivable or can be recovered;

(e) " capital gain ",-

(i) with reference to capital gain of any person arising from a change of ownership of property means, subject to the provisions of subsection (3) of section 4, the amount by which the value of that property at the time when such change of ownership occurs exceeds its value at the time when it was acquired by that person;

(ii) with reference to capital gain of any person arising from the surrender or relinquishment of any right or the transfer of some of the rights in any property or the loss of any office or employment, means, subject to the provisions of subsection (3) of section 4, the value of the consideration for such surrender, relinquishment, or transfer, or the amount of compensation for such loss;

(iii) with reference to capital gain of any person arising from the redemption of any shares, debentures or other obligations, means, subject to the provisions of subsection (3) of section 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 of its acquisition by him, or, where that which is redeemed is any property referred to in sub-paragraph (viii) or sub-paragraph (ix) or sub-paragraph (x) of paragraph (j) of this subsection, less such value of that property as is specified in that sub-paragraph;

(iv) with reference to capital gain of any person rising from the formation of a company, means, subject to the provisions of subsection (3) of section 4, the value of the consideration received by him for any transaction in connection with the formation of such company;

(v) with reference to capital gain of any person arising from the dissolution of a business or the liquidation of a company, means, subject to the provisions of subsection (3) of section 4, the amount by which the value of all property 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;

(vi) with reference to capital gain arising from the amalgamation or merger of two or more companies, means, in the case of a shareholder of any of those companies, any money received by such shareholder in consequence of such amalgamation or merger, and, in the case of any other person, the value of the consideration received by such other person for any transaction in connection with such amalgamation or merger; and

(vii) with reference to capital gain of any person arising from a transaction promoted by him without being a party to it, the sum received by him as commission or reward;

(f) " capital loss ",-

(i) with reference to capital loss of any person arising from a change of ownership of any property, means, subject to the provisions of subsection (4) of section 4, the amount by which the value of that property at the time when such change of ownership occurs is less than its value at the time when it was acquired by that person;

(ii) with reference to capital loss of any person arising from the redemption of any shares, debentures or other obligations, means, subject to the provisions of subsection (4) of section 4, the amount by which the value of all property received by him in consequence of such redemption is less than the value of that which is redeemed at the time of its acquisition or where that which is redeemed is any property referred to in sub-paragraph (viii) or sub-paragraph (ix) or sub-paragraph (x) of paragraph (j) of this subsection is less than such value of that property as is specified in that sub-paragraph;

(iii) with reference to capital loss of any person arising from the dissolution of a business or the liquidation of a company, means, subject to the provisions of subsection (4) of section 4, the amount by which the value of all property received by him in consequence of such dissolution or liquidation is less than the value of his share of the capital of such business or company at the time when such share was acquired by him; and

(iv) includes the amount of any debt which is proved to be due by documentary evidence and which is proved to be irrecoverable;

(g) " change of ownership ", in the context of the definition of " capital gain " or " capital loss ", does not include-

(i) 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,

(ii) the sale of any property which was used by any person in producing income from any trade, business, profession, vocation, or employment carried on or exercised by him, and in respect of which a deduction for depreciation has been allowed under section 10, such sale being effected by him without his ceasing to carry on or exercise that trade, business, profession, vocation, or employment,

(iii) the passing of any property subject to a trust from the trustee to any beneficiary under the trust, and

(iv) 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;

	(h) " market value ", with reference to any property and any date and in the context of the definition of " value of any property ", means the price which, in the opinion of an Assessor, that property would have fetched on that date in an open market;

	(i) " net capital gain", in respect of any year of assessment, means the excess of the capital gain for that year over the capital loss for that year;

(j) " value", with reference to any property or consideration in the context of the definition of " capital gain " or " capital loss ", shall be as follows: -

(i) where the property is movable property acquired before April 1, 1957, by the person who is the owner of the property immediately before the occurrence of the transaction which resulted in such gain or loss, then, subject to the provisions of sub-paragraph (vi), sub-paragraph (viii), sub-paragraph (ix), sub-paragraph (x) and subparagraph (xi) of this paragraph, the value of the property at the time of such occurrence shall, if such transaction is a sale of the property, be an amount equal to the sale price, and if such transaction is other than a sale, be an amount equal to the market value of the property at that time, and 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, 1957;

(ii) where the property is movable property acquired by such person on or after April 1, 1957, then, subject to the provisions of sub-paragraph (vi), subparagraph (viii), sub-paragraph (ix), sub-paragraph (x) and sub-paragraph (xi) of this paragraph, the value of the property at the time of the occurrence of the transaction which resulted in such gain or loss shall, if such transaction is a sale of the property, be an amount equal to the sale price, and, if such transaction is other than a sale, be an amount equal to the market value of the property at that time, and the value of the property at the time when it was acquired by such person shall, if such acquisition was by purchase, be an amount equal to the cost of such purchase, and, if such acquisition was otherwise than by purchase, be an amount equal to the market value of the property at the time of such acquisition;

(iii) where the property is immovable property acquired by such person before April 1, 1957, then, subject to the provisions of sub-paragraph (vi), subparagraph (vii) and sub-paragraph (xi) of this paragraph, the value of the property at the time of the change of ownership shall, if such change occurs by a sale of the property, be an amount equal to the sale price, and, if such change occurs in any other manner, be an amount equal to the market value of the property at that time, and 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, 1957;

(iv) where the property is immovable property acquired by such person on or after April 1, 1957, then, subject to the provisions of sub-paragraph (vi), subparagraph (vii) and sub-paragraph (xi) of this paragraph, the value of the property at the time of the change of ownership shall, if such change occurs by a sale of the property, be an amount equal to the sale price, and, if such change occurs in any other manner, be an amount equal to the market value of the property at that time, and the value of the property at the time when it was acquired by such person shall, if such acquisition was by purchase, be an amount equal to the cost of such purchase, and, if such acquisition was otherwise than by purchase, be an amount equal to the market value of the property at the time of such acquisition;

(v) the value of any consideration received by any person shall, where the consideration is 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, where the consideration is 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;

(vi) where the acquisition of the property by such person is by the transfer of the property by a trustee under a trust to such person in his capacity as a beneficiary under the trust or is by the transfer of the property by an executor to such person in his capacity as a testate or an intestate heir of the deceased whose estate is administered by such executor, the value of the property at the time of such acquisition shall, if the date of the acquisition by such trustee or executor is before April 1, 1957, be an amount equal to the market value of the property on April 1, 1957, and, if the date of such acquisition is on or after April 1, 1957, 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;

(vii) where the person who is the owner of the property immediately before the occurrence of the change of ownership 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 a fiduciary in that property, the value of the property at the time when the first-mentioned person acquired title to the property shall, if the date of acquisition of such title is before April 1, 1957, be an amount equal to the market value of the property on April 1, 1957, and if the date of acquisition of such title is on or after April 1, 1957, be an amount equal to the market value of the property on the date of acquisition of such title;

(viii) where the property consists of any shares forming part of a holding of such person which includes bonus shares issued on or after April 1,1957, or shares issued on or after April 1, 1957, at a price less than their market value, the value of the property at the time when it was acquired by such person shall-

(ix) where the property consists of any shares received by a person in place of any shares of his in any of two or more companies which have amalgamated or merged on or after April 1, 1957, the value of the property at the time when it was so received shall-

(x) 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-

(xi) where the property is property which was acquired by the person who is the owner of the property immediately before the occurrence of the change of ownership, and which was used by him in producing income from any trade, business, profession, vocation, employment, or undertaking carried on or exercised by him, and in respect of which a deduction for depreciation has been allowed under section 10, the value of the property at the time of the acquisition by him of the property shall-

(xii) 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 that 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.

* The amendments made in section 3 by sub-paragraph (i) of paragraph (A), and by sub-paragraph (II) of paragraph (B), of subsection (1) of section 2 of Act No. 18 of 1965 shall be deemed to have come into force on March 30, 1963, and the amendment made in the aforesaid section 3 by subparagraph (ii) of paragraph (A) of subsection (1) of section 2 of Act No. 18 of 1965 shall- Where any person has paid any sum as income tax on the value of prize won by him at a sweep or lottery and such person is in consequence of the amendments made in section 3 by subsection (1) of section 2 of Act No. 18 of 1965 not liable to such tax, the Commissioner shall cause to be refunded such sum to such person. [See section 2 (3) of Act No. 18 of 1965].

(a) in so far as it relates to a prize won at any hospitals lottery, be deemed to have come into force on May 2, 1963;

(b) in so far as it relates to a prize won at any Industrial Exhibition Sweep, be deemed to have come into force on August 16, 1963; and

(c) in so far as it relates to a prize won at any other sweep or lottery, be deemed to have come into force on October 1, 1963. [See section 2 (2) of Act No. 18 of 1965].

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