Association of Accounting Technicians of Sri Lanka

Level III Examination - January 2024

Suggested Answers

(304) CORPORATE & PERSONAL TAXATION (CPT)

Association of Accounting Technicians of Sri Lanka

No.540,Ven. Muruththettuve Ananda Nahimi Mawatha,
Narahenpita, Colombo 05.
Tel : 011-2-559 669

A publication of the Education and Training Division

 THE ASSOCIATION OF ACCOUNTING TECHNICIANS OF SRI LANKA

Level III Examination – January 2024

(304) CORPORATE & PERSONAL TAXATION

SUGGESTED ANSWERS

(Total 20 Marks)
SECTION - A

Suggested Answers to Question One:

Chapter 01 - Introduction to Taxation of Sri Lanka

(a)
As per the section 69 (4) of the Inland Revenue Act No. 24 of 2017, an company shall be a
resident in Sri Lanka for a year of assessment if the company;
 Incorporated or formed under the law of Sri Lanka or,
 It is registered or the principal office is in Sri Lanka or,
 At the any time during the year the management and control of the affairs of the
company are exercised in Sri Lanka.
As per the given case, Build Expert (PVT) Limited (BEL) is incorporated under the law of Sri
Lanka. Therefore, as per the section 69(4)(a) BEL is a resident company for the year of
assessment 2022/2023 for tax purpose.
(03 marks)
(b)
The taxation of a country is generally based on set of principles as follows;
 Equity
 Progressivity
 Economy/Efficiency
 Certainty
 Adequacy
 Simplicity
 Broad Base
 Stability
 Convenience and voluntary compliance

(02 marks)
(Total 05 marks)

304/CPT 1 (304) CORPORATE AND

PERSONAL TAXATION
Suggested Answers to Question Two:
Chapter 06 - Capital Gain Tax & Advanced Personal Income Tax (APIT)
(a)
Mr. Gihan
Computation of Capital Gain Tax
For the Y/A 2022/2023
Rs.
Consideration Received (Market Value) 8,000,000
Less: Cost of the Asset
Market value as at 30/09/2017 ** 6,500,000
Broker’s fee 200,000 (6,700,000)
Capital gain/ Gain on the realization of 1,300,000
investment asset

Capital gain tax (CGT) 1,300,000 @ 10% 130,000

** As the land was acquired prior to 30th September 2017, the cost of such asset shall be
equal to the market value of the asset as at 30th September 2017.
(03 marks)
(b) Obligations of an employer under the APIT scheme are;
 Deduct APIT from the gross remuneration of the employee.
 Remit APIT deducted from employee’s gross remuneration to the Commissioner
General of Inland Revenue (CGIR) on or before the 15th day of the following month.
 Issue a tax deduction certificate (T10 Certificate) to the employees on or before 30 th
April of the immediately succeeding year of assessment or within 30 days from the
date of an employee who is ceased employment.
 Furnish Annual Statement of APIT to the CGIR on or before 30th April of the
immediately succeeding year of assessment.
 Keep records of payment of remuneration as per the forms specified by the CGIR.

(02 marks)
(Total 05 marks)

304/CPT 2 (304) CORPORATE AND

PERSONAL TAXATION
Suggested Answers to Question Three:
Chapter 06 – Case Law
Assumption: Nalin had initial intention to resell this land.
As per the Mahavitharana Vs CIR assesse and another acquired an option to purchase a tea
estate of 583 acres by paying an advance and agreed to complete the transaction within a
short time period. They did not have sufficient finance to purchase this nor intention to
purchase the entire estate with their own funds or with borrowed funds. They quickly
produced purchasers for 464 acres and out of the remaining area part was sold and the
balanced allowed the government to acquire. Even though the assesse argued that they
agreed to purchase the estate as a source of green leaf to their tea factory, it was clear that
they did not secure the option in order to purchase the estate for themselves.
That the facts and circumstances of the case, the transactions were an adventure or concern
in the nature or trade. The intention at the time of entering to an agreement was to embark
on a venture in the nature of the trade. Accordingly, Nalin also purchase the land for the
purpose of resale. Therefore as per the facts in the given case study similar to the case in
Mahavitharana Vs CIR. Finally can conclude that profit earned by Nalin through this
transaction is to be considered for tax purposes as taxable.
As per the provisions of the Section 195 of Inland Revenue Act No. 24 of 2024 business is
defined as,
 a trade, profession, vocation or isolated arrangement with a business character
however short the duration of the arrangement;
 a past, present or prospective business; but excludes an employment
If it is a trade, it should be,
 Purchase of commercial quantities of product that cannot be used personally,
 If asset is held for a shorter period
 Repetition of transaction
 Intention of making profit and
 Intention to resale
In the given case also we can identify the characteristics of,
 Purchase of commercial quantities of product that cannot be used personally
 Intention to resale
 If asset is held for a shorter period
Therefore, we can identify there is a trade which take business nature. Hence, the profits
earned from this series of transactions is liable for income tax.
(05 marks)

304/CPT 3 (304) CORPORATE AND

PERSONAL TAXATION
Suggested Answers to Question Four:
Chapter 07 - Other Business Taxes (TVRS & SSCL)

(a)
Following tourist eligible for refund under TVRS;
 A non-citizen and non-resident of Sri Lanka.
 Stayed in Sri Lanka for less than ninety (90) days, under a visitor visa issued by the
Controller General of Immigration and Emigration of Sri Lanka.
 Should not be less than 18 year of age as of the first day his visit Sri Lanka.
(02 marks)
(b)
SSCL liability is Rs. 52,000,000 * 2.5% = Rs. 1,300,000.

(03 marks)
(Total 05 marks)

End of Section A

304/CPT 4 (304) CORPORATE AND

PERSONAL TAXATION
(Total 30 Marks)
SECTION - B

Suggested Answers to Question Five:

Chapter 07- Other Business Taxes (VAT)

Tast (Pvt) Ltd.

Computation of VAT Liability
For the Quarter ended 31st March 2023
Output Tax Value of Supply Rate % VAT
Export 6,692,000 0% -
Local Sale (SVAT) 9,368,800 15% 1,405,320
Other local sale 17,399,200 15% 2,609,880
Total Output VAT 4,015,200

Input Tax
Import of packing material 845,000
Local purchases 1,645,000
Repair of car used by MD Not allowed
Allowable Input VAT 2,490,000
B/F Unabsorbed input tax 36,000
Total allowable input VAT (2,526,000)
VAT Payable 1,489,200
Less:
SVAT Credit Voucher *** (1,405,320)
Monthly installment (50,000) (1,455,320)
Balance VAT Payable 33,880

*** Assuming SVAT Credit vouchers have been collected.

(10 marks)

304/CPT 5 (304) CORPORATE AND

PERSONAL TAXATION
Suggested Answers to Question Six:
Chapter 04 – Partnership Tax

T & S Property Valuers

Computation Income Tax Liability
for the Year of Assessment 2022/23 (Rs.)
(+) (-)
Net profit 7,600,000
Interest income 3,400,000
Rent income 1,500,000
Partner’s salary - Disallowed Note 1 6,000,000
Professional fees to Sunimal – Disallowed Note 2 1,200,000
Tharaka’s wife salary - Allowed -
Donation to Cancer Hospital – Disallowed 1,000,000
Depreciation – Photo Copier Machine – 400,000
Disallowed
Capital allowance Note 3 800,000
16,200,000 5,700,000
(5,700,000)
Partnership Business Income 10,500,000
Add: Investment Income
Interest income 3,400,000
Rent income 1,500,000
Partnership, Assessable Income 15,400,000
Less: Sec. 52 – Qualifying Payments & Relief
Donation made to Cancer Hospital (1,000,000)
Partnership Taxable Income 14,400,000

Calculation of Partnership Payable

- First 1,000,000 @ 0% Nil
- On balance 13,400,000 @ 6% 804,000
Partnership Tax Payable 804,000

Note 1
Salaries paid to partners are disallowed
Tharaka Rs. 2,000,000
Sunimal Rs. 4,000,000
Rs. 6,000,000

304/CPT 6 (304) CORPORATE AND

PERSONAL TAXATION
Note 2
Professional fee received by Sunimal is disallowed
Sunimal (Rs. 100,000 *12) Rs. 1,200,000

Note 3
Capital allowance on Photo Copier Machine
Asset Cost (Rs.) Acquired Y/A Useful Life Capital Allowance (Rs.)

Photo Copier Machine 4,000,000 2022/23 5 year 800,000

(10 marks)
Suggested Answers to Question Seven:
Chapter 05 – Obligation and Procedure

(a)
As per the section 90 (3) of the act, installment tax payable need to be calculated using
following formula:
Estimated tax liability for Y/A 2022/23 – (Installment paid +WHT)
Installment payment = Remaining no. of installments

43,500,000 – (20,000,000 + 26,400)

03rd installment value = 2

= Rs. 11,736,800
(03 marks)
(b)
Payment of third quarter of the Y/A 2022/23 should be made on or before 15 th of February
2023.
(02 marks)
(c)
As per the section 90 (1), subject to section 94 and subsection (2), every person shall file
with the Commissioner-General not later than eight months after the end of each year of
assessment a return of income for the year.

Therefore, Super (Pvt) Limited need to submit income tax return for the year of assessment
2022/23, on or before the 30th of November 2023.
(02 marks)

304/CPT 7 (304) CORPORATE AND

PERSONAL TAXATION
(d)
The Assistant Commissioner may amend a tax assessment,
i. In the case of fraud or gross or willful neglect by or on behalf of the taxpayer at
any time; or
ii. As per the Section 135 of, Act No. 24 of 2017 Inland Revenue Act applicable time
bar is within the 30 months of self-assessment date that tax payer filed the self-
assessment return.
Therefore, time bar limit to 30 months from 30th November 2023.
(03 marks)
(Total 10 marks)

End of Section B

304/CPT 8 (304) CORPORATE AND

PERSONAL TAXATION
(Total 50 Marks) SECTION - C

Suggested Answers to Question Eight:

Chapter 03 – Taxation of a Company

Fashion (Pvt) Ltd.

Computation of Balance Tax Liability
for the Year of Assessment 2022/23 (Rs.)
Assessable Income from Business Note 1 69,105,000
Assessable Income from Investment Note 2 400,000
(a) Total Assessable Income 69,505,000
Less: Sec. 52 – Qualifying Payment & Reliefs Note 3 (500,000)
(b) Taxable Income 69,005,000
(C) Gross Tax Payable @ 30% 20,701,500
Less: Tax Credits
Installment Paid (10,000,000)
(d) Balance Income Tax Payable 10,701,500

Note 1 – Business Income

Fashion (Pvt) Ltd.
Computation of Assessable Income from Business for the Y/A 2022/23
Description Working (+) (-)
Net profit before tax 64,250,000
Dividend income 650,000
Interest income on Treasury Bill 400,000
Profit on disposal of a motor vehicle 216,000
Assessable charge W1 1,810,000
Accounting depreciation 4,860,000
Capital allowance W2 5,730,000
Gratuity provision 4,200,000
Entertainment expense – Sec. 10, disallowed 320,000
Penalty payment – Sec. 10, disallowed 136,000
Foreign travelling expense – Sec.11, allowed -
Advertisement Expense (Capital Nature – Not 50,000
allowed)
Donation- flood victims 500,000
-Approved charity 600,000
Gratuity paid 625,000
76,726,000 7,621,000

304/CPT 9 (304) CORPORATE AND

PERSONAL TAXATION
 (7,621,000)
Assessable income from business 69,105,000

W 1 – Assessable Charge of Motor Vehicle

Accounting disposal gain is not considered as taxable income. Therefore, as per the
provision of the IR act assessable charge or balancing allowance should be calculated as
follows,
Consideration 2,850,000
Less: Tax written down value
Cost 2,600,000
(-) Capital allowance claimed
Y/A 2019/20-(2,600,000 * 25%) 520,000
Y/A 2020/21-(2,600,000 * 25%) 520,000
Y/A 2021/22-(2,600,000 * 25%) 520,000
Y/A 2022/23 Not eligible (1,560,000) (1,040,000)
Assessable Charge 1,810,000

W 2 – Capital allowance
Accounting depreciation not allow to deduct as an expense for tax purpose and capital
allowance can claimed a deductible expense as per section 16 of Act no. 24 of 2017 IR Act.
Acquired
Description Cost (Rs.) Useful life Capital allowance (Rs.)
Y/A
Disposed motor Lorry 2019/20 2,600,000 5 years Disposed during the Y/A
Motor Lorries 2019/20 24,300,000 5 years 4,860,000
Office equipment 2019/20 2,150,000 5 years 430,000
Office equipment 2019/20 460,000 5 years 92,000
Computer 2019/20 1,430,00 5 years 286,000
Computer software 2022/23 620,000 10 years 62,000
Total 5,730,000

Note 2 – Business Income

Fashion (Pvt) Ltd.
Computation of Assessable Income from Investment for the Y/A 2022/23
Interest from Treasury Bill 650,000
Dividend income (out of dividend received) Exempt
Assessable income from investment 650,000

304/CPT 10 (304) CORPORATE AND

PERSONAL TAXATION
Note 3 – Qualifying Payment & Relief
Donation made to flood victims Rs. 500,000 worth of garments is not allow claim under Sec.
52. Rs. 600,000 made to approved charity can be claim under section 52 subject to below
restriction.

Lower value of,

Actual donation Rs. 600,000 or
1/5 * Taxable income Rs. 13,941,000 or
Maximum Rs. 500,000

Therefore, lower value of Rs. 500,000 can deduct under section 52, qualifying payment &
relief
(25 marks)

304/CPT 11 (304) CORPORATE AND

PERSONAL TAXATION
Suggested Answers to Question Nine:
Chapter 03 – Taxation of an Individual

Ms. Sally
Computation of Income Tax Liability
for the Year of Assessment 2022/23 (Rs.)
Assessable income from Employment (Note 1) 3,060,000
Assessable income from Business (Note 2) 1,050,000
Assessable income from Investment (Note 3) 1,200,000
Total Assessable Income 5,310,000
Less: Sec.52 – Qualifying Payment & Reliefs
Personal Relief (1,200,000)
Donation – Medical Faculty of Colombo University (400,000) (1,600,000)
(a) Total Taxable Income 3,710,000

(b) Gross Tax Liability (W1) 885,600

Less: Tax Credits
APIT paid (266,400)
WHT on Interest (25,000)
Installment paid (350,000) (641,400)
(c) Balance Tax Payable 244,2000

(d) Exempted Income

Capital gain on quoted share 200,000
Dividend income 300,000
Medical insurance premium - Excluded 96,000
Air ticket & accommodation - Excluded 500,000

Note 1 – Employment Income

Ms. Sally
Computation of Assessable Income from Employment for the Y/A 2022/23 (Rs.)
Gross salary (180,000*12) 2,160,000
Medical insurance premium Excluded -
(Provide benefits all employees equally)
Residence provide by employer (45,000 – 10,000)*12 420,000
Fuel allowance (40,000*12) 480,000
Air ticket & accommodation Excluded -
(Represent the company)
Assessable Income from Employment 3,060,000

304/CPT 12 (304) CORPORATE AND

PERSONAL TAXATION
Note 2 – Business Income
Ms. Sally
Computation of Assessable Income from Business for the Y/A 2022/23 (Rs.)
(+) (-)
Net profit before tax 1,070,000
Personal telephone charges – Disallow (Sec. 11) 30,0000
150,000*20%
Accounting depreciation 100,000
Capital allowances (750,000/5) 150,000
1,200,000 150,000
(150,000)
Assessable Income from Business 1,050,000

Note 3 – Investment Income

Ms. Sally
Computation of Assessable Income from Investment for the Y/A 2022/23 (Rs.)
Interest Income
FD interest 500,000
Treasury Bill 700,000 1,200,000

Gain on quoted share disposal Exempt -

Dividend (out of dividend received) Exempt -
Assessable Income from Investment 1,200,000

W1 – Gross tax liability

First Rs. 500,000 x 6% 30,000
Next Rs. 500,000 x 12% 60,000
Next Rs. 500,000 x 18% 90,000
Next Rs. 500,000 x 24% 120,000
Next Rs. 500,000 x 30% 150,000
On balance Rs. 1,210,000 x 36% 435,600
885,600

(25 marks)

End of Section C

304/CPT 13 (304) CORPORATE AND

PERSONAL TAXATION
Notice:

These answers compiled and issued by the Education and Training Division of AAT Sri Lanka
constitute part and parcel of study material for AAT students.
These should be understood as Suggested Answers to question set at AAT Examinations and should
not be construed as the “Only” answers, or, for that matter even as “Model Answers”. The
fundamental objective of this publication is to add completeness to its series of study texts, designs
especially for the benefit of those students who are engaged in self-studies. These are intended to
assist them with the exploration of the relevant subject matter and further enhance their understanding
as well as stay relevant in the art of answering questions at examination level.

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304/CPT 14 (304) CORPORATE AND

PERSONAL TAXATION