Income Tax Act

Official PDF pages 311–315

SOURCE PDF PAGE 311
(9) Irrespective of anything contained in any other provision of this Part, where
the amount credited to the Tonnage Tax Reserve Account as per sub-section (1) is
less than the minimum amount required to be credited under sub-section (1), an
amount which bears the same proportion to the total relevant shipping income, as
the shortfall in credit to the reserves bears to the minimum reserve required to be
credited under sub-section (1), shall not be taxable under the tonnage tax scheme
and shall be taxable under the other provisions of this Act.
(10) If the reserve required to be created under sub-section (1) is not created for
any two consecutive tax years, the option of the company for tonnage tax scheme
shall cease to have effect from the beginning of the tax year following the second
consecutive tax year in which the failure to create the reserve under sub-section
(1) had occurred.
(11) For the purposes of this section, the expression “new ship” or “new inland vessel”,
as the case may be, includes a qualifying ship which, before the date of acquisition
by the qualifying company was used by any other person, if it was not at any time
previous to the date of such acquisition owned by any person resident in India.
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[ (12) A tonnage tax company, after its option has been approved under section
231(4), shall comply with the minimum training requirement as per the guidelines
issued by the Director-General of Shipping or the Inland Waterways Authority of India,
as the case may be, and notified by the Central Government.
(13) The tonnage tax company shall be required to furnish a copy of the certificate
issued by the Director-General of Shipping, or the designated authority, as appointed
by the respective State Governments under the Inland Vessels Act, 2021 (24 of 2021),
as the case may be, along with the return of income under section 263 to the effect
that such company has complied with the minimum training requirement as per the
guidelines referred to in sub-section (12) for the tax year. ]
(14) If the minimum training requirement is not complied with for any five con -
secutive tax years, the option of the company for tonnage tax scheme shall cease
to have effect from the beginning of the tax year following the fifth consecutive tax
year in which the failure to comply with the minimum training requirement as per
sub-section (12) had occurred.
(15) In the case of every company which has opted for tonnage tax scheme, not
more than 49% of the net tonnage of the qualifying ships operated by it during any
tax year shall be chartered in.
40.   Sub-sections (12) and (13) substituted by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior to
their substitution, sub-sections (12) and (13) read as under :
“(12) A tonnage tax company, after its option has been approved under section 231(4), shall
comply with the minimum training requirement in respect of trainee officers as per the
guidelines issued by the Director-General of Shipping and notified by the Central Government.
(13) The tonnage tax company shall be required to furnish a copy of the certificate issued
by the Director-General of Shipping along with the return of income under section 263 to
the effect that such company has complied with the minimum training requirement as per
the guidelines referred to in sub-section (12) for the tax year.”

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(16) The proportion of net tonnage referred to in sub-section (15) in respect of a tax
year shall be calculated based on the average of net tonnage during that tax year.
(17) For the purposes of sub-section (16), the average of net tonnage shall be computed
in such manner, as may be prescribed, in consultation with the Director- General of
Shipping  
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[ or Inland Waterways Authority of India, as the case may be ] .
(18) Where the net tonnage of ships or inland vessel, as the case may be, chartered
in exceeds the limit under sub-section (15) during any tax year, the total income
of such company in relation to that tax year shall be computed as if the option for
tonnage tax scheme does not have effect for that tax year.
(19) Where the limit under sub-section (15) had exceeded in any two consecutive
tax years, the option for tonnage tax scheme shall cease to have effect from the
beginning of the tax year following the second consecutive tax year in which the
limit had exceeded.
(20) For the purposes of this section, the expression “chartered in” shall exclude a
ship or inland vessel, as the case may be, chartered in by the company on bareboat
charter- cum -demise terms.
(21) An option for tonnage tax scheme by a tonnage tax company shall not have
effect in relation to a tax year unless such company—
( a )   maintains separate books of account in respect of the business of oper -
ating qualifying ships; and
( b )   furnishes, before the specified date referred to in section 63, the report
of an accountant, in the prescribed form, duly signed and verified by
such accountant.
(22) A temporary cessation (as against permanent cessation) of operating any qual -
ifying ship by a company shall not be considered as a cessation of operating of such
qualifying ship and the company shall be deemed to be operating such qualifying
ship for the purposes of this Part of the Chapter.
(23) Where a qualifying company continues to operate a ship or inland vessel, as
the case may be, which temporarily ceases to be a qualifying ship, such ship or
inland vessel, as the case may be, shall not be deemed as a qualifying ship for the
purposes of this Part.
Amalgamation and demerger.
233.   (1) Where there has been an amalgamation of a company with another
company or companies, then, subject to the other provisions of this section,
the provisions relating to the tonnage tax scheme shall, as far as may be, apply to
the amalgamated company, if it is a qualifying company.
(2) Where the amalgamated company is not a tonnage tax company, it shall exercise
an option for tonnage tax scheme under section 231(1)   within three months from
the date of the approval of the scheme of amalgamation.
41.   Inserted by the Finance Act, 2026, w.e.f.   1-4-2026 .

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(3) Where the amalgamating companies are tonnage tax companies, the provisions
of this Part shall, as far as may be, apply to the amalgamated company for such
period as the option for tonnage tax scheme which has the longest unexpired period
continues to be in force.
(4) Where one of the amalgamating companies is a qualifying company as on the 1st
October, 2004 and which has not exercised the option for tonnage tax scheme before
the 1st January, 2005, the provisions of this Part shall not apply to the amalgam -
ated company and the income of the amalgamated company from the business of
operating qualifying ships shall be computed as per the other provisions of this Act.
(5) Where in a scheme of demerger, the demerged company transfers its business
to the resulting company before the expiry of the option for tonnage tax sche me,
then, subject to the other provisions of this Part, the tonnage tax scheme shall, as
far as may be, apply to the resulting company for the unexpired period, if it is a
qualifying company.
(6) The option for tonnage tax scheme in respect of the demerged company shall
remain in force for the unexpired period of the tonnage tax scheme if it continues
to be a qualifying company.
Avoidance of tax and exclusion from tonnage tax scheme.
234.   (1) Subject to the provisions of this Part, the tonnage tax scheme shall not
apply where a tonnage tax company is a party to any transaction or arrange -
ment which amounts to an abuse of the tonnage tax scheme.
(2) For the purposes of sub-section (1), a transaction or arrangement shall be
considered an abuse, if the entering into or the application of such transaction or
arrangement results, or would but for this section have resulted, in a tax advantage
being obtained for—
( a )   a person other than a tonnage tax company; or
( b )   a tonnage tax company in respect of its non-tonnage tax activities.
(3) For the purposes of this section, “tax advantage” includes—
( a )   the determination of—
( i )   the allowance for any expense or interest; or
( ii )   any cost or expense allocated or apportioned,
which has the effect of reducing the income or increasing the loss, from
activities other than tonnage tax activities chargeable to tax, computed
on the basis of entries made in the books of account in respect of the tax
year in which the transaction was entered into; or
( b )   a transaction or arrangement which produces to the tonnage tax com -
pany more than ordinary profits which might be expected to arise from
tonnage tax activities.
(4) Where a tonnage tax company is a party to any transaction or arrangement
referred to in sub-section (1), the Assessing Officer shall, by an order in writing,
exclude such company from the tonnage tax scheme.

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(5) The Assessing Officer shall pass an order under sub-section (4), after––
( a )   giving an opportunity to the company by serving a notice calling upon
such company to show cause, on a date and time to be specified in the
notice, why it should not be excluded from the tonnage tax scheme; and
( b )   obtaining prior approval of the Principal Chief Commissioner or Chief
Commissioner.
(6) The provisions of this section shall not apply where the company satisfies the
Assessing Officer that the transaction or arrangement was a   bona fide   commercial
transaction and had not been entered into for the purpose of obtaining tax advan -
tage under this Part.
(7) Where an order has been passed under sub-section (4) by the Assessing Officer
excluding the tonnage tax company from the tonnage tax scheme, the option for
tonnage tax scheme shall cease to be in force from the first day of the tax year in
which the transaction or arrangement was entered into.
Interpretation.
235.   For the purposes of this Part,—
( a )   “bareboat charter” means hiring of a ship or inland vessel, as the case may
be, for a stipulated period on terms which give the charterer possession
and control of the ship or inland vessel, as the case may be, including
the right to appoint the master and crew;
( b )   “bareboat charter- cum -demise” means a bareboat charter where the
ownership of the ship or inland vessel, as the case may be, is intended
to be transferred after a specified period to the company to whom it has
been chartered;
( c )   “Director-General of Shipping” means the Director-General of Shipping
appointed by the Central Government under section 7(1) of the Merchant
Shipping Act, 1958 (44 of 1958);
( d )   “factory ship” includes a vessel providing processing services in respect
of processing of the fishing produce;
( e )   “fishing vessel” shall have the meaning assigned to it in section 3(12)   of
the Merchant Shipping Act, 1958 (44 of 1958);
( f )   “inland vessel” shall have the meaning assigned to it in section 3( q )   of
the Inland Vessels Act, 2021 (24 of 2021);
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[ ( fa )   “Inland Waterways Authority of India” shall have the same meaning as
assigned to it in section 3 of the Inland Waterways Authority of India Act,
1985 (82 of 1985); ]
( g )   “pleasure craft” means a ship or inland vessel, as the case may be, of a
kind whose primary use is for the purposes of sport or recreation;
( h )   “qualifying company” means a company, if—
( i )   it is an Indian company;
( ii )   the place of effective management of the company is in India;
42.   Inserted by the Finance Act, 2026, w.e.f.   1-4-2026 .

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( iii )   it owns at least one qualifying ship; and
( iv )   the main object of the company is to carry on the business of
operating ships,
and for the purposes of sub-clause ( ii ), “place of effective management
of the company” means—
( A )   the place where the board of directors of the company or its exec -
utive directors, make their decisions; or
( B )   in a case where the board of directors routinely approve the com -
mercial and strategic decisions made by the executive directors or
officers of the company, the place where such executive directors
or officers of the company perform their functions;
( i )   “qualifying ship” means a ship or inland vessel, as the case may be, if—
( i )   it is a seagoing ship or vessel or inland vessel, as the case may be,
of fifteen net tonnage or more;
( ii )   it is a ship registered under the Merchant Shipping Act, 1958
(44 of 1958), or a ship registered outside India in respect of which a
licence has been issued by the Director-General of Shipping under
section 406 or 407 of said Act or an inland vessel registered under
the Inland Vessels Act, 2021 (24 of 2021), as the case may be; and
( iii )   a valid certificate in respect of such ship or inland vessel, as the
case may be, indicating its net tonnage is in force,
but does not include—
( A )   a seagoing ship or vessel or inland vessel, as the case may be, if
the main purpose for which it is used is the provision of goods or
services of a kind normally provided on land;
( B )   fishing vessels;
( C )   factory ships;
( D )   pleasure crafts;
( E )   harbour and river ferries;
( F )   offshore installations; and
( G )   a qualifying ship which is used as a fishing vessel for more than
thirty days during a tax year;
( j )   “seagoing ship” means a ship, if it is certified as such by the competent
authority of any country;
( k )   “tonnage income” means the income of a tonnage tax company computed
as per the provisions of this Part of the Chapter;
( l )   “tonnage tax activities” means the activities referred to in section 228(3)
and (7);
( m )   “tonnage tax business” means the business of operating qualifying ships
giving rise to relevant shipping income as referred to in section 228(1);