IN THE COURT OF APPEAL OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA In the matter of an Appeal by way of a Stated Case on a question of law for the opinion of the Court of Appeal under and in terms of Section 11A of the Tax Appeals Commission Act, No. 23 of 2011 (as amended).

Johnson and Johnson (Private)

Limited, Renuka Building, 41, Janadipathi Mawatha, Colombo 01.

Appellant Case No. CA/TAX/0002/2018 Tax Appeals Commission No. TAC/IT/039/2015 Vs.

The Commissioner General of Inland Revenue, Department of Inland Revenue, Sir Chittampalam A. Gardiner Mawatha, Colombo 02. Respondent Before : Dr. Ruwan Fernando J. &

M. Sampath K.B. Wijeratne J.

el : Dr. Shivaji Felix with Nivantha Satharasinghe for the Appellant Milinda Gunatilake, Additional Solicitor General, P.C. for the Respondent.

Argued on : 18.02.2021, 12.03.2021, 28.04.2021 &

15.12.2021 Written Submissions filed on :

29.06.2018, 31.01.2020 & 17.02.2022 (by the Appellant)

29.06.2018 & 24.03.2022 (by the Respondent)

Decided on : 27.05. 2022 Dr. Ruwan Fernando, J.

Introduction [1] This is an appeal by way of a case stated against the determination made by the Tax Appeals Commission dated 07.11.2017 confirming the determination made by the Respondent on 14.10.2015 and dismissing the Appeal of the Appellant. The period relates to the year of assessment

2010/2011.

Factual Background [2] According to the case stated (p. 189 of the Tax Appeals Commission brief) and the Certificate of Approved Accountant under Section 107(2)(a) of the Inland Revenue Act (p. 158 of the Tax Appeals Commission brief), the Appellant (Johnson & Johnson Pvt. Ltd) is a company incorporated in India, having a branch office in Sri Lanka, and the company is engaged in the export of medical equipment, import and wholesale business of cosmetics and baby care items. The Appellant submitted the return of income for the above year of assessment and deducted an amount of Rs. 37,522,673/- as exempt profit from offshore trading and claimed a tax exemption under Section 13 (b) (ii) of the Inland Revenue Act, No. 10 of 2006. The Assessor refused to accept the return of income submitted by the Appellant and refused to grant the exemption under Section 13 (b) (ii) of the Inland Revenue Act, No. 10 of 2006 for the following reason:

1. Johnson & Johnson Ltd (Sri Lanka Branch) is a non-resident company; 2. Even though the goods are purchased and sold out of Sri Lanka by Johnson & Johnson Ltd (Sri Lanka Branch), the business has been carried out in Sri Lanka.

[3] Accordingly, the Assessor assessed the assessable income as follows:

Y/A 2010/2011 Trade Profit On local sales 132,260,570 On Enter port sales 39,080,710 On sales outside Sri Lanka 37,522,673

208,863,953 Less Loss of income for the year (17,610,339)

191,253,614 Tax on income taxable at special rate

39,080,710 X 10% 3,908,071 Tax on balance taxable income

152,172,904 X 35% 53,260,516 Tax payable 57,168,587 Social Responsibility levy payable 857,529 [4] Accordingly, the notice of assessment was issued by the Assessor, and being dissatisfied with the said assessments, the Appellant appealed to the Commissioner-General of Inland Revenue (hereinafter referred to as the Respondent). The Respondent by its determination dated 14.10.2015 confirmed the assessment and dismissed the appeal (Vide- reasons for the determination at pp. 26-30 of the Tax Appeals Commission brief).

Appeal to the Tax Appeals Commission & the Court of Appeal [5] Being dissatisfied with the determination of the Respondent, the Appellant appealed to the Tax Appeals Commission. The Tax Appeals

Commission by its determination dated 07.11.2017 confirmed the determination made by the Respondent and dismissed the appeal. The Tax Appeals Commission held in its determination that:

1. The tax exemption under section 13 (b)(ii) of the IRA 2006 is given to a resident company and the Appellant does not satisfy the requirement of a resident company;

2. The Appellant is not involved in offshore business specified in Section 13 (b)(i