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 Distilleries Company of Sri Lanka Plc No.110, Norris Canal Road, CA/Tax Colombo 10 Case No. 13/13 Appellant Vs Commissioner General of Inland Revenue Department of Inland Revenue Sir Chittampalam A Gardiner Mawatha Colombo 2 Respondent Before: D.N. Samarakoon – J C.P. Kirtisinghe – J Counsel: Riad Ameen for the Appellant Manohara Jayasinghe SSC for the Respondent Argued On :03/03/2021 Decided On :03/08/2021 C.P. Kirtisinghe – J The Appellant, Sri Lanka Distilleries Corporation of Sri Lanka PLC is engaged in the manufacture and import of liquor sold through registered distributors and retailers (Licensees and wine stores). The assessor did not accept the return of income submitted by the Appellant for the taxable period 2006/2007 and the Appellant appealed to the Commissioner General of Inland Revenue. The Respondent Commissioner General of Inland Revenue in the determination dated 15.10.2010 confirmed the assessment of the assessor. The Appellant being dissatisfied with the determination of the Commissioner General of Inland Revenue appealed to the Board of Review but as the appeal was not concluded before the Board of Review the appeal got transferred to the Tax Appeals Commission. After considering the submissions made by both parties the Tax Appeals Commission had dismissed the appeal of the Appellant for the reasons set out in their determination dated 14/02/2013. Upon the application of the Distilleries Company of Sri Lanka PLC and under the provisions of Section 170 of the Inland Revenue Act No. 10 of 2006, the Tax Appeals Commission has stated this case for the opinion of this Court.

The Questions of Law raised by the Appellant in its application to the Tax Appeals Commission to cause a case to be stated are as follows;

1. Is the amount of Rs. 93,997,709 paid by the Appellant Company to the retailers in reimbursement of the extra Turnover tax paid by the retailers deductible in the particular circumstances of this case in terms of Section 25(1) of the Inland Revenue Act No. 10 of 2006 as an expenditure incurred in the production of income in the computation of the profits of the Appellant Company?

2. Is the conclusion of the Commission that the expenditure in question cannot be treated as an expenditure incurred in the production of income vitiated by the fact that the Commission has totally failed to consider the House of Lords decision in the case of Usher’s Wiltshire Brewery Ltd v Bruce, a case of highest persuasive authority cited on behalf of the Appellant, which case has the highest degree of relevance to the present case in that, that case is also concerned about the expenditure incurred by the tax payer in relation to the business of some other persons and the tied tenants in which case are similar to the retailers in the present case?

3. Is the conclusion of the Commission that the expenditure in question is capital expenditure vitiated by the following circumstances?

a. The Commission has unreasonably and erroneously acted on the assumption that the Appellant has argued that the reimbursement was made with a view to acquiring an enduring benefit whereas, as a matter of fact, no such argument was made by the Appellant. On the contrary, the submission of the Appellant was that “in the present case, the intention of the expenditure undertaken was not to bring into existence an asset or an advantage for the enduring benefit of the trade or business of the Appellant Company, the whole purpose of the expenditure was to deal with the question of the impact of the increased rate of tax on the profitability of the Company” (written submissions of the Appellant).

b. The Commission has totally disregarded the decision in the case of Commissioners of Inland Revenue v Carron Company and the observation of Lord Reid regarding the nature of any advantage.

c. The Commissi