Distilleries Company of Sri Lanka PLC vs. Commissioner General of Inland Revenue – sllr 2021 volume 1 page 431

In the case between Distilleries Company of Sri Lanka PLC and the Commissioner General of Inland Revenue, the court addressed whether the reimbursement paid by Distilleries Company to retailers for extra turnover tax incurred in January 2007 qualified as an expense incurred in the production of income under Section 25(1) of the Inland Revenue Act, or constituted capital expenditure under Section 26(1)(h). It was held that the reimbursement, being a one-off payment with no resulting asset or enduring benefit, did not amount to capital expenditure but also could not be treated as a deductible expense incurred in the production of income. The court reaffirmed the principle that deductibility depends on a direct connection to income production and a recurring nature, and relied upon judicial i