Special Provisions relating to Income Of Shipping Companies [Chapter Xll-G of Income-Tax Act]

 (A) COMPUTATION OF TONNAGE INCOME FROM BUSINESS OF OPERATING QUALIFYING SHIPS.

  (A) COMPUTATION OF TONNAGE INCOME FROM BUSINESS OF OPERATING QUALIFYING SHIPS

• Computation of profits and gains from the business of operating qualifying ships [Section 115VA]—

In the case of a company, the income from the business of operating qualifying ships, may, at its option, be computed in accordance with the provisions of this Chapter and such income shall be deemed to be profits & gains of such business chargeable to tax under the head “Profits & gains of business or profession”.

• Computation of Income under tonnage tax scheme [Section 115VE]—

A tonnage tax company engaged in business of operating qualifying ships shall compute the profits from such business under the tonnage tax scheme.

The tonnage tax scheme shall apply only if an option to that effect is made in accordance with the provisions of section 11 5VP.

• Computation of tonnage income [Section 115VG]—

The tonnage income of a tonnage tax company for a previous year shall be the aggregate of tonnage income of each qualifying ship.

Tonnage income of each qualifying ship shall be daily tonnage income of each ship multiplied by—

(a)        Number of days in previous year; or

(b)       Number of days in part of the previous year in case ship is operated by company as qualifying ship for only part of previous year, as the case may be.

Whereas daily tonnage income of qualifying ship shall be as per table:—

TABLE
For the A.Y. 2005-2006 to 201 2-2013

TABLE
For the A.Y. 2013-2014 and onwards

For the purposes of this Chapter, tonnage shall mean the tonnage of a ship indicated in the certificate referred to in section 115VX and includes the deemed tonnage computed in the prescribed manner.

Tonnage shall be rounded off to the nearest multiple of 100 tons and for this purpose, any tonnage consisting of kilograms shall be ignored.

No deduction or set off shall be allowed in computing the tonnage income under this Chapter.

• Treatment of common costs [Section 115VJ] -

(1)        In case tonnage tax company also carries on any business other than tonnage tax business, common costs relating to tonnage tax business shall be determined on a reasonable basis.

(2)        Where any asset, other than a qualifying ship, is not exclusively used for the tonnage tax business by the tonnage tax company, depreciation on such asset shall be allocated between its tonnage tax business and other business on a fair proportion to be determined by the Assessing Officer, having regard to the use of such asset for the purpose of the tonnage tax business and for the other business.

• Chargeable Gains from transfer of tonnage tax assets [Section 115VN ]—

If any capital asset forming part of block of qualifying assets is transferred, then capital gains arising from the transfer shall be computed in accordance with provisions of sections 45 to 51.

(B)                   PROCEDURE FOR OPTION OF TONNAGE TAX SCHEME

• Method & time of opting for tonnage tax scheme [See Section 115VP]—

(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.

(2)        The application may be made by an existing qualifying company at any time after 30th september2004 but before 1st January2005 (hereafter referred to as the “initial period”).

(3)        On receipt of an application for option for tonnage tax scheme, the Joint Commissioner may call for such information or documents from the company as he thinks necessary in orderto satisfy himself about the eligibility of the company and after satisfying himself about such eligibility to make such option for tonnage tax scheme, he –

(i)         shall pass an order in writing approved the option for tonnage tax scheme; or

(ii)        shall, if he is not so satisfied, pass an order in writing refusing to approve the option for tonnage tax scheme.

(4)        Every order granting or refusing the approval of the option for tonnage tax scheme under clause (i)&(ii), as the case may be, of sub-section (3) shall be passed before the expiry of one month from the end of the month in which the application was received.

(5)        Where an order granting approval is passed above the provisions of this chapter shall apply from the assessment year relevant to the previous year in which the option for tonnage tax scheme is exercised.

(C)       CONDITONS FOR APPLICABILITY OF TONNAGE TAX SCHEME

• Transfer of profits to Tonnage Tax Reserve Account [ Section 115VT]—

(1)        Credit to a reserve account, an amount not less than 20% of the book profit derived.

(2)        Company has book profit and book loss from any other sources and such shortfall shall be deemed to be a part of the reserve requirement.

(3)        The amount credited to the Tonnage Tax Reserve Account before the expiry of a period of eight years next following the previous year,(a) for acquiring a new ships; and (b) business of operating qualifying ships.

(4)        Where any amount credited to the Tonnage Tax Reserve Account –

(a)        has been utilised for any purpose other than that referred to sub-section (3)(a)or(b);

(b)       has not been utilised for the purpose specified in sub-section (3)(a);

(c)        has been utilised for the purpose of acquiring a new ship as specified in sub-section (3)(a), but such ship is sold or otherwise transferred.

(5)        The amount credited to the Tonnage Tax Scheme Account in accordance with sub-section (1) is less than minimum amount required to be credited shall not be taxable under the tonnage tax scheme and shall be taxable.

(6)        any two consecutive previous years, second consecutive previous year in which the failure to create the reserve has occurred.

(D) AMALGAMATION AND DEMERGER OF SHIPPING COMPANIES

• Amalgamation. [Section 115VY] —

Where there has been an amalgamation of a company with another company or companies, then, 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. However, where the amalgamated company is not a tonnage tax company, It shall exercise an option for tonnage tax scheme under section 115VP(1) within 3 months from the date of the approval of the scheme of amalgamation:

Where the amalgamating companies are tonnage tax companies shall, 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 :

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 within the initial period, shall not apply to the amalgamated company and the income of the amalgamated company from the business of operating qualifying ships shall be computed.

• Demerger. [Section 115VZ ]—

Wherein a scheme of demerger, the demerged company transfers its business to the resulting company before the expiry of the option for tonnage tax scheme, then, subject to the other provisions of this Chapter, 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:

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

(E) MISCELLANEOUS

• Effect of temporarily ceasing to operate qualifying ships [Section 115VZA]—

(1) A temporary cessation (as against permanent cessation) of operating any qualifying 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.

(2) Where a qualifying company continues to operate a ship, which temporarily ceases to be a qualifying ship, such ship shall not be considered as a qualifying ship.

(F) PROVISION OF THIS CHAPTER NOT TO APPLY IN CERTAIN CASES

• Avoidance of tax [Section 115VZB]—

(1)        The tonnage tax scheme shall not apply where a tonnage tax company is a party to any transaction or arrangement which amounts to an abuse of the tonnage tax scheme.

(2)        A transaction or arrangement shall be considered an abuse if the entering into or the application f such transaction or arrangement results, in a tax advantage being obtained for—

(i)         a person other than a tonnage tax company; or

(ii)        a tonnage tax company in respect of its non-tonnage tax activities.

• Exclusion from tonnage tax scheme [Section 115VZC]—

(1)        Where a tonnage tax company is a party to any transaction or arrangement referred to in section 115VZB(1), the Assessing Officer shall, by an order in writing, exclude such company from the tonnage tax scheme.

An opportunity shall be given by the Assessing Officer 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. No order shall be passed without the previous approval of the Chief Commissioner.

(2)        It shall not apply where the company shows to the satisfaction of 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 advantage.

(3)        Where an order has been passed 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 previous year in which the transaction or arrangement was entered into.