IN THE COURT OF APPEAL OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA In the matter of a Case Stated for the opinion of the Court of Appeal under section 11A of the Tax Appeals Commission Act, No 23 of 2011 (as amended).

Commissioner General of Inland Revenue, CA/TAX/0019/2015 Department of Inland Revenue, Tax Appeals Commission Sir Chittampalam A. Gardiner TAC/OLD/IT/044 Mawatha, Colombo 02.

APPELLANT Vs.

1. Osprey Clothing (Private) Limited, 929/929B, Main Road, Nawagamuwa, Ranala.

RESPONDENTS Before: Sobhitha Rajakaruna J.

Dhammika Ganepola J.

Counsel: Chaya Sri Nammuni DSG for the Appellant Dr.Shivaji Felix with Nivantha Satharasinghe for the Respondent Argued on: 02.10.2023 Written Submissions- Appellant - 28.08.2019 Respondent - 18.06.2018,13.05.2020, 27.11.2023 Decided on: 24.01.2024 Sobhitha Rajakaruna J.

In terms of section 11A (2) of the Tax Appeals Commission Act No 23 of 2011, the Appellant tendered to this Court by way of a motion dated 14.12.2015 the ‘Case Stated’ and annexures thereto marked ‘X1’ to ‘X4’.

The Respondent - Osprey Clothing (Private) Limited (‘Company’) entered into an agreement (‘1^st Agreement’) with the Board of Investment of Sri Lanka (‘BOI’) on 10.06.1992 to set up and operate a business of manufacturing and exporting apparel at Kantale. The Period for which the tax exemption was granted to the Respondent under the said Agreement is 15 years from the year of assessment. Subsequently, on 25.05.1993 another Agreement (‘Supplementary Agreement’) was entered into between both the above parties. In view of the said Supplementary Agreement the Respondent sought approval from the BOI for the establishment of a washing plant, finishing section and bounded warehouse in Nawagamuwa, in addition to the business referred to in the 1^st Agreement.

The core issue that needs to be resolved in the instant Application is whether the Respondent is entitled for tax relief under BOI law in respect of the said washing plant, finishing section and bounded warehouse established in Nawagamuwa. The Tax Appeals Commission (‘TAC’) based on the contents of Clause 10 of the 1^st Agreement decided that the Tax exemption granted in favor of the Respondent applies even to the business activities relating to the washing plant etc.

The following questions were raised before the TAC by the Appellant for the opinion of this Court:

1. "Whether the Tax Appeals Commission disregarded the term ‘said business’

and entitlement of ‘exemption’ in the principal Agreement dated 10^th June 1992

2. Whether the Tax Appeals Commission has erred in the determination, the recital of the principal Agreement was amended so as to take the newly introduced business under the reference of ‘the said business’.

3. Whether the Tax Appeals Commission has erred in law to determine the scope of which the tax exemption granted under the principal Agreement of BOI and the Supplementary Agreement

4. Whether the Tax Appeal Commission has erred by disregarding the restriction clauses 5(d) and 5(e) in the principal Agreement." (Vide – 'Case Stated' dated

02.12.2015)

The stand taken by the Commissioner General of Inland Revenue before the TAC was that the tax exemption granted for 15 years under Clause 10 of the aforesaid 1^st Agreement, does not cover the whole profit and income of the Company but it is limited to the profit and income from manufacturing and exporting apparels which is the business described in the said 1^st Agreement. The alleged basis for such an argument is that the business referred to in the Supplementary Agreement is different from the business declared in the 1st Agreement.

Clause 5 of the said Supplementary Agreement declares that the said Agreement is supplemental to the aforesaid 1^st Agreement of which certain Clauses have been modified. On perusal of the said Supplementary Agreement, it implies that the respective parties have entered into the said Agreement based on the conditions and stipulations contained in the letter dated 04.03.1993 signed by the