Income Tax Act

Official PDF pages 306–310

SOURCE PDF PAGE 306
D =   the written down value of the block of qualifying assets as on the first
day of the tax year;
E =   the written down value of the block of other assets as on the first day of
the tax year;
A =   the written down value of the existing block of assets, being ships or
inland vessel, as the case may be, as on the first day of the tax year;
B =   the aggregate of book written down value of qualifying assets as on the
last day of the preceding tax year; and
C =   the aggregate of the book written down value of other assets as on the
last day of the preceding tax year.
(3) The block of qualifying assets as determined under sub-section (2) shall consti -
tute a separate block of assets for the purposes of this Part.
(4) Where an asset forming part of a block of,—
( a )   qualifying assets begins to be used for purposes other than the tonnage
tax business, an appropriate portion of the written down value alloca -
ble to such asset shall be reduced from the written down value of that
block and shall be added to the block of other assets as per the following
formula:—
A = B ×  
C
D
where,—
A =   the appropriate portion of the written down value allo -
cable to the asset which begins to be used for purposes
other than the tonnage tax business;
B =   the written down value of block of qualifying assets as
on the first day of the tax year;
C =   the book written down value of qualifying asset which
begins to be used for purpose other than the tonnage
tax business; and
D =   the aggregate of book written down value of all the assets
forming the block of qualifying assets;
( b )   other assets, begins to be used for tonnage tax business, an appropriate
portion of the written down value allocable to such asset shall be reduced
from the written down value of the block of other assets and shall be
added to the block of qualifying asset as per the following formula:—
E = F ×  
G
I
where,—
E =   the appropriate proportion of the written down value allocable
to the asset which begins to be used for purposes of tonnage
tax business;

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F =   the written down value of block of other assets as on the first
day of the tax year;
G =   book written down value of the other asset which begins to
be used for tonnage tax business; and
I =   the aggregate of book written down value of all the assets
forming the block of other assets.
(5) For the purposes of computing depreciation under section 230(1)( d )   in respect of
an asset mentioned in sub-sections (4)( a ) and ( b ), the depreciation computed for the
tax year shall be allocated in the ratio of the number of days for which the asset was
used for the tonnage tax business and for purposes other than tonnage tax business.
(6) For the purposes of this Act, the depreciation on the block of qualifying assets
and block of other assets so created shall be allowed as if such written down value
referred to in sub-section (2) had been brought forward from the preceding tax year.
(7) For the purposes of this section, the expression “book written down value” means
the written down value as per books of account.
(8) Any profits or gains arising from the transfer of a capital asset being an asset
forming part of the block of qualifying assets shall be chargeable to income-tax as
per sections 67 and 74, and the capital gains so arising shall be computed as per
sections 67 to 81.
(9) For the purposes of computing such profits or gains, as referred to in sub-sec -
tion (8), the provisions of section 74 shall have effect as if for the words “written
down value of the block of assets”, the words “written down value of the block of
qualifying assets” had been substituted.
(10) For the purposes of this Chapter, the expression “written down value of the block
of qualifying assets” means the written down value computed as per sub-section (2).
Exclusion of deduction, loss, set off, etc.
230.   (1) Irrespective of anything contained in any other provision of this Act, in
computing the tonnage income of a tonnage tax company for any tax year
(herein referred to as the “relevant tax year”) in which it is chargeable to tax as per
this Part—
( a )   sections 28 to 52 shall apply as if every loss, allowance or deduction
referred to therein and relating to or allowable for any of the relevant
tax years, had been given full effect to for that tax year itself;
( b )   no loss referred to in section 108(1) or (2)( b ) or 109(1) or 112(1) or 116(1),
in so far as such loss relates to the business of operating qualifying ships
of the company, shall be carried forward or set off where such loss re -
lates to any of the tax years when the company is under the tonnage tax
scheme;
( c )   no deduction shall be allowed under Chapter VIII in relation to the profits
and gains from the business of operating qualifying ships; and
( d )   in computing the depreciation allowance under section 33, the written
down value of any asset used for the purposes of the tonnage tax business
shall be computed as if the company has claimed and has been actually

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allowed the deduction in respect of depreciation for the relevant tax
years.
(2) Section 112 shall apply in respect of any losses that have accrued to a company
before its option for tonnage tax scheme and which are attributable to its tonnage
tax business, as if such losses had been set off against the relevant shipping income
in any of the tax years when the company is under the tonnage tax scheme.
(3) The losses referred to in sub-section (2) shall not be available for set off against
any income other than relevant shipping income in any tax year beginning on or
after the company exercises its option under section 231.
(4) Any apportionment necessary to determine the losses referred to in sub-section
(2) shall be made on a reasonable basis.
Method of opting of tonnage tax scheme and validity.
231.   (1) A qualifying company may opt for the tonnage tax scheme by making
an application to the Joint Commissioner having jurisdiction over the company
in the form and manner, as may be prescribed, for such scheme.
(2) A qualifying company may make an application within three months, of the
date of its incorporation, or of the date on which it becomes a qualifying company
for the first time.
(3) A Unit of an International Financial Services Centre which has availed of
deduction under section 147 may make an application within three months from
the date on which such deduction ceases.
(4) On receipt of an application for option for tonnage tax scheme under sub-section
(1), the Joint Commissioner may call for such information or documents from the
company as he thinks necessary in order to satisfy himself about the eligibility of
the company and after satisfying himself about such eligibility of the company to
make such option for tonnage tax scheme, he shall pass an order in writing—
( a )   approving the option for tonnage tax scheme; or
( b )   refusing to approve the option for tonnage tax scheme, if he is not so
satisfied,
and a copy of such order shall be sent to the applicant.
(5) No order under sub-section (4)( b ) shall be passed unless the applicant has been
given a reasonable opportunity of being heard.
(6) Every order under sub-section (4) shall be passed before the expiry of three
months from the end of the quarter in which the application under sub-section (1)
was received.
(7) Where an order granting approval is passed under sub-section (4), the provi -
sions of this Part shall apply from the tax year in which the option for tonnage tax
scheme is exercised.
(8) An option for tonnage tax scheme, after it has been approved under sub-section
(4), shall remain in force for ten years from the date on which such option has been
exercised and shall be taken into account from the tax year in which such option
is exercised.

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(9) An option for tonnage tax scheme shall cease to have effect from the tax year,
in which—
( a )   the qualifying company ceases to be a qualifying company;
( b )   a default is made in complying with the provisions contained in section
232(1) to (20);
( c )   the tonnage tax company is excluded from the tonnage tax scheme under
section 234;
( d )   the qualifying company furnishes to the Assessing Officer, a declaration
in writing to the effect that the provisions of this Part may not be made
applicable to it,
and the profits and gains of the company from the business of operating qualifying
ships shall be computed as per other provisions of this Act.
(10) An option for tonnage tax scheme approved under sub-section (4) may be
renewed within one year from the end of the tax year in which the option ceases
to have effect.
(11) The provisions of sub-sections (1) to (9) shall apply in relation to a renewal of
the option for tonnage tax scheme in the same manner as they apply in relation to
the approval of option for tonnage tax scheme.
(12) A qualifying company,—
( a )   which on its own, opts out of the tonnage tax scheme; or
( b )   which makes a default in complying with the provisions contained in
section 232(1) to (20); or
( c )   whose option has been excluded from tonnage tax scheme in pursuance
of an order made under section 234(4),
shall not be eligible to opt for tonnage tax scheme for ten years from the date of
opting out or default or order.
Certain conditions for applicability of tonnage tax scheme.
232.   (1) A tonnage tax company shall, subject to and as per the provisions of this
section, be required to credit to a reserve account (herein referred to as the
Tonnage Tax Reserve Account) an amount, being 20% or more of the book profit
derived from the activities referred to in section 228(1)( a ) and ( b )   in each tax year
to be utilised in the manner laid down in sub-section (6).
(2) For the purposes of this section, the expression “book profit” shall have the
meaning assigned to it in section 206(1)( c )   so far as it relates to the income derived
from the activities referred to in section 228(1)( a ) and ( b ).
(3) Where the company has—
( a )   book profit from the business of operating qualifying ships; and
( b )   book loss from any other sources,
and consequently, the company is not in a position to create the full or any part
of the reserves under sub-section (1), the company shall create the reserves to the
extent possible in that tax year and the shortfall, if any, shall be added to the reserves

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required to be created for the following tax year and such shortfall shall be deemed
to be part of the reserve requirement of that following tax year.
(4) For the purposes of sub-section (3), to the extent the shortfall in creation of
reserves during a particular tax year is carried forward to the following tax year
under the said sub-section, the company shall be considered as having created
sufficient reserves for the first mentioned tax year.
(5) For the purposes of sub-section (3), nothing contained in sub-section (4) shall
apply in respect of the second year in case the shortfall in creation of reserves con -
tinues for two consecutive tax years.
(6) The amount credited to the Tonnage Tax Reserve Account under sub-section (1)
shall be utilised by the company before the expiry of eight years following the tax
year in which the amount was credited—
( a )   for acquiring a new ship or new inland vessel, as the case may be, for
the purposes of the business of the company; and
( b )   until the acquisition of a new ship or new inland vessel, as the case may
be, for the purposes of the business of operating qualifying ships other
than for distribution by way of dividends or profits or for remittance
outside India as profits or for the creation of any asset outside India.
(7) Where any amount credited to the Tonnage Tax Reserve Account under sub-sec -
tion (1),—
( a )   has been utilised for any purpose other than that referred to in sub-sec -
tion (6); or
( b )   has not been utilised for the purpose specified in sub-section (6)( a ); or
( c )   has been utilised for the purpose of acquiring a new ship or new inland
vessel, as the case may be, as specified in sub-section (6)( a ), but such
ship or inland vessel, as the case may be, is sold or otherwise transferred,
other than in any scheme of demerger by the company to any person at
any time before the expiry of three years from the end of the tax year in
which it was acquired,
an amount which bears the same proportion to the total relevant shipping income
of the year in which such reserve was created, as the amount out of such reserve
so utilised or not utilised bears to the total reserve created during that year under
sub-section (1) shall be taxable under the other provisions of this Act—
( i )   in a case referred to in clause ( a ), in the year in which the amount was
so utilised; or
( ii )   in a case referred to in clause ( b ), in the year immediately following
eight years specified in sub-section (6); or
( iii )   in a case referred to in clause ( c ), in the year in which the sale or transfer
took place.
(8) The income so taxable under the other provisions of this Act, referred to in
sub-section (7), shall be reduced by the proportionate tonnage income charged to
tax in the year of creation of such reserves.