IN THE COURT OF APPEAL OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA In the matter of a case stated under Section 170 of the Inland Revenue Act, No. 10 of 2006 (as amended).

Pathirannahelage Thilakasiri Weerasinghe, Carrying on business as a sole Proprietor under the name style and firm of “Lanka Sportseizen” No. 29, B.S.De S. Jayasinghe Mawatha, Dehiwala. Appellant Case No. CA/TAX/0027/2013 Tax Appeals Commission No. TAC/ESC/002/2011 Vs.

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 : Uditha Egalahewa, P.C. with Riad Ameen for the Appellant Nirmalan Wigneswaran, Deputy Solicitor General for the Respondent Argued on : 10.03.2022 Written Submissions filed on :

07.09.2018 & 09.05.2022 (by the Appellant)

15.05.2020 & 05.05.2022 (by the Respondent)

Decided on : 29.07. 2022 Dr. Ruwan Fernando, J.

Introduction [1] This is an appeal by way of a case stated against the determination of the Tax Appeals Commission dated 26.07.2013 confirming the determination made by the Respondent on 19.12.2011 in respect of the Economic Service Charge (ESC) which covers the quarters ending 30.06.2006, 30.09.2006, 31.12.2006, 31.03.2007, 30.06.2007, 30.09.2007, 31.12.2007 and

31.03.2008.

Factual Background [2] The Appellant is carrying on a business of a Travel Agency and destination/management in Sri Lanka under the name and style of “Lanka Sportreizen” (hereinafter referred to as “LSR”). In addition, the Appellant has been appointed by the SriLankan Airlines Limited as the authorised handling agent to service the passengers of the Airline arriving in Sri Lanka on its SriLankan Layover Programme subject to the terms and conditions set out therein.

[3] The Appellant submitted the return of income in respect of the Economic Service Charge (ESC) which covers the quarters ending 30.06.2006, 30.09.2006, 31.12.2006, 31.03.2007, 30.06.2007, 30.09.2007, 31.12.2007 and 31.03.2008, and claimed a concessionary rate of 0.5% on the relevant turnover under section 2 of the Economic Service Charge Act, No. 13 of 2006 (hereinafter referred to as the “ESC Act”) read with item 3 of the Schedule of the ESC Act in relation to its business with SriLankan Airlines Ltd as a travel agent. The Senior Assessor by letter dated 03.11.2009 (p. 67 of the TAC brief) separated the turnover of the Appellant from (i) business with SriLankan Airlines Ltd (Rs. 45,002,128); and (ii) business as tour operator (Rs. 23,865,068) and disallowed the concessionary rate of 0.5% for the Appellant’s business. The Assessor decided that the normal ECS rate of 1% would be applied as the Appellant is not an undertaking for the promotion of tourism under section 45 (1) (b) of the Inland Revenue Act No. 10 of 2006. His reasons are as follows:

“(a) As per the section 3 (b) of the Economic Service Charge Act, No. 13 of 2000, you are required to pay the Economic Service Charge on the total turnover of your business, but you have paid only on the profit margin or value addition of your business.

(b) The business activity operated by your business under the agreement reached with SriLankan Airlines is connected with the air passengers. Therefore, it is not an undertaking for the promotion of tourism as mentioned under section 45 (1) (b) of the Inland Revenue Act, No. 10 of 2006. Hence, the profit and income from that undertaking is liable to income tax under Part 1 of the 1^st Schedule of the Inland Revenue Act, No. 10 of 2006 and the ESC rate applicable for that turnover is 1%.

[4] Accordingly, the Assessor declared that the Economic Service Charge payable by the Appellant in respect of each quarter is as follows:

Quarter ending 30.06.2006 (06071)

Turnover from the business agreed with SriLankan Airlines-

45,002,128 1% 450,021 Turnover from the business as tour operator

23,865,068 0.5% 119,325 Total 68,867,196 569,346 Quarter ending 30.09.2006 (06072)

Turnover from the busine