LegalWalaKart CA Firm
Login
LegalWalaKart CA Firm

ITA Chapter 13 P2

Special provision for computation of total income of non-residents

  1. No deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the investment income of a non-resident Indian.
  2. In the case of an assessee, being a non-resident Indian, where—
    1. the gross total income consists only of investment income or income by way of long-term capital gains or both, then no deduction shall be allowed under Chapter VIII;
    2. the gross total income includes any income referred to in clause (a),—
      1. the gross total income shall be reduced by such income; and
      2. the deductions under Chapter VIII shall be allowed as if the gross total income as so reduced was the gross total income of the assessee.

Tax on investment income and long-term capital gains

  1. The income-tax payable on the total income of an assessee, being a non- resident Indian, which includes income specified in column B of the Table below, shall be the aggregate of income-tax computed at the rate specified in the column C applied on the corresponding income specified in column B.

Capital gains on transfer of foreign exchange assets not to be charged in certain cases

  1. Where, in case of an assessee, being a non-resident Indian,—
    1. any long-term capital gains arises from the transfer of a foreign exchange asset (herein referred to as original asset); and
    2. within six months after the date of such transfer, he has invested the whole or any part of the net consideration in any specified asset (herein referred to as new asset),
    then the capital gains shall be dealt with in the following manner:—
    1. if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 67;
    2. if the cost of the new asset is less than the net consideration in respect of the original asset, then the capital gain computed by the following formula shall not be charged under section 67:

      A = B × C / D

      Where,
      1. A = the capital gains not to be charged under section 67;
      2. B = whole of the capital gain;
      3. C = cost of acquisition of the new asset;
      4. D = net consideration in respect of the original asset.
  2. For the purposes of sub-section (1),—
    1. “cost”, in relation to any new asset, being a deposit referred to in section 212(e)(iii) or (v), means the amount of such deposit;
    2. “net consideration” in relation to the transfer of the original asset, means the full value of the consideration received or accruing as a result of the transfer of such asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
  3. Where the new asset is transferred or converted (otherwise than by transfer) into money, within three years from date of its acquisition, the capital gain arising from transfer of original asset not so charged under section 67 on the basis of the cost of such new asset as provided in sub-section (1)(i) or (ii), shall be deemed to be income by way of capital gains relating to capital assets other than short-term capital assets of the tax year in which the new asset is transferred or converted (otherwise than by transfer) into money.

Return of income not to be furnished in certain cases

  1. It shall not be necessary for a non-resident Indian to furnish a return of his income under section 263(1), if—
    1. his total income during the tax year consisted only of investment income or income by way of long-term capital gains or both; and
    2. the tax deductible at source under the provisions of Chapter XIX-B has been deducted from such income.

Benefit under Chapter to be available in certain cases even after assessee becomes resident

  1. Where a non-resident Indian in any tax year,—
    1. becomes assessable as a resident in India in respect of total income in a subsequent year; and
    2. furnishes a declaration in writing to the Assessing Officer along with his return of income under section 263 for the tax year for which he is so assessable, to the effect that provisions of sections 212 to 216 shall continue to apply to him in relation to the investment income derived from any foreign exchange asset referred to in section 212(e) other than shares in an Indian company,
    then the provisions of sections 212 to 216 shall continue to apply in relation to such income for that tax year and every subsequent tax year until the transfer or conversion (otherwise than by transfer) of such assets into money.

Chapter not to apply if the assessee so chooses

  1. A non-resident Indian may choose not to be governed by the provisions of sections 212 to 217 for any tax year by declaring it in his return of income under section 263 for such tax year, and if he does so,—
    1. the provisions of sections 212 to 217 shall not apply to him for that tax year; and
    2. his total income for that tax year shall be computed and charged to tax according to the other provisions of this Act.

Conversion of an Indian branch of foreign company into subsidiary Indian company

  1. Where a foreign company is engaged in the business of banking in India through its branch situated in India and such branch is converted into a subsidiary Indian company as per the scheme framed by the Reserve Bank of India, then, irrespective of anything contained in this Act and subject to the conditions as may be notified by the Central Government,—
    1. the capital gains arising from such conversion shall not be chargeable to tax in the tax year in which such conversion takes place; and
    2. the provisions of this Act relating to—
      1. treatment of unabsorbed depreciation, set off or carry forward and set off of losses;
      2. tax credit in respect of tax paid on deemed income relating to certain companies; and
      3. computation of income of the foreign company and subsidiary Indian company,
      shall apply with such exceptions, modifications and adaptations as specified in that notification.
  2. In case of failure to comply with any of the conditions specified in the scheme or in the notification issued under sub-section (1), all the provisions of this Act shall apply to the foreign company and the said subsidiary Indian company without any benefit, exemption or relief under the said sub-section.
  3. Where, in a tax year, any benefit, exemption or relief has been claimed and granted as per the provisions of sub-section (1) and, subsequently, there is failure to comply with any of the conditions specified in the scheme or in the notification issued under the said sub-section then,—
    1. such benefit, exemption or relief shall be deemed to have been wrongly allowed;
    2. the Assessing Officer may, irrespective of anything in this Act, re-compute the total income of the assessee for the said tax year and make the necessary amendment; and
    3. the provisions of section 287 shall, so far as may be, apply thereto and the period of four years specified in sub-section (8) of that section being reckoned from the end of the tax year in which the failure to comply with the condition referred to in sub-section (1) takes place.
  4. Every notification issued under this section shall be laid before each House of Parliament.

Foreign company said to be resident in India

  1. Where a foreign company is said to be a resident in India in any tax year and such company has not been a resident in India in earlier tax years, then, irrespective of anything in this Act and subject to the conditions as may be notified by the Central Government in this behalf, the provisions of this Act relating to—
    1. the computation of total income;
    2. treatment of unabsorbed depreciation;
    3. set off or carry forward and set off of losses;
    4. collection and recovery; and
    5. special provisions relating to avoidance of tax,
    shall apply with such exceptions, modifications and adaptations as specified in that notification for such tax year.
  2. Where the determination regarding foreign company to be resident in India has been made in the assessment proceedings for any tax year, then, the provisions of sub-section (1) shall also apply to any other tax year succeeding such tax year, which ends on or before the date of completion of such assessment proceeding.
  3. Where, in a tax year, any benefit, exemption or relief has been claimed and granted to the foreign company as per the provisions of sub-section (1), and, subsequently, there is failure to comply with any of the conditions specified in the notification issued under the said sub-section, then,—
    1. such benefit, exemption or relief shall be deemed to have been wrongly allowed;
    2. the Assessing Officer may, irrespective of anything in this Act, re-compute the total income of the assessee for the said tax year and make the necessary amendment as if the exceptions, modifications and adaptation referred to in sub-section (1) did not apply; and
    3. the provisions of section 287 shall, so far as may be, apply thereto and the period of four years specified in sub-section (8) of that section being reckoned from the end of the tax year in which the failure to comply with the condition referred to in sub-section (1) takes place.
  4. Every notification issued under this section shall be laid before each House of Parliament.

F.—Special provisions relating to pass-through entities

Tax on income from securitisation trusts

  1. Irrespective of anything contained in this Act, where a person being an investor of a securitisation trust, receives any income or any income accrues or arises to him, out of investments made in the securitisation trust, such income shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person, had the investments by the securitisation trust been made directly by him.
  2. The income paid or credited by the securitisation trust shall be deemed to be of the same nature and in the same proportion in the hands of the person referred to in sub-section (1), as if it had been received by, or had accrued or arisen to, the securitisation trust during the tax year.
  3. The income accruing or arising to, or received by, the securitisation trust during a tax year, if not paid or credited to the person referred to in sub-section (1), shall be deemed to have been credited to the account of the said person—
    1. on the last day of the tax year; and
    2. in the same proportion in which such person would have been entitled to receive the income had it been paid in the tax year.
  4. The person responsible for crediting or making payment of the income on behalf of securitisation trust, and the securitisation trust, shall furnish, within such period, as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in such form and verified in such manner, giving details of the nature of the income paid or credited during the tax year and such other relevant details, as may be prescribed.
  5. Any income which has been included in the total income of the person referred to in sub-section (1) in a tax year, on account of it having accrued or arisen in the said tax year, shall not be included in the total income of such person in the tax year in which such income is actually paid to him by the securitisation trust.
  6. For the purposes of this section,—
    1. “investor” means a person who is holder of any securitised debt instrument or securities or security receipt issued by the securitisation trust;
    2. “securities” means debt securities issued by a Special Purpose Vehicle as referred to in the guidelines on securitisation of standard assets issued by the Reserve Bank of India;
    3. “securitised debt instrument” shall have the same meaning as assigned to it in regulation 2(1)(s) of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
    4. “securitisation trust” means a trust, being a—
      1. “special purpose distinct entity” as defined in regulation 2(1)(u) of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and regulated under the said regulations; or
      2. “Special Purpose Vehicle” as defined in, and regulated by, the guidelines on securitisation of standard assets issued by the Reserve Bank of India; or
      3. trust set-up by a securitisation company or a reconstruction company formed, for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), or in pursuance of any guidelines or directions issued for the said purposes by the Reserve Bank of India,
      which fulfils such conditions, as may be prescribed;
    5. “security receipt” shall have the same meaning as assigned to it in section 2(1)(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002).

Tax on income in case of venture capital undertakings

  1. Irrespective of anything contained in any other provision of this Act, where a person, out of investments made in a venture capital company or venture capital fund, receives any income, or any income accrues or arises to him, such income shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person, had he made investments directly in the venture capital undertaking.
  2. The person responsible for crediting or making payment of the income on behalf of a venture capital company or a venture capital fund and the venture capital company or venture capital fund shall furnish, within such time, as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in the prescribed form and verified in the prescribed manner, giving details of the nature of the income paid or credited during the tax year and such other relevant details, as may be prescribed.
  3. The income paid or credited by the venture capital company and the venture capital fund shall be deemed to be of the same nature and in the same proportion in the hands of the person referred to in sub-section (1) as it had been received by, or had accrued or arisen to, the venture capital company or the venture capital fund, as the case may be, during the tax year.
  4. The provisions of Chapter XIX-B shall not apply to the income paid by a venture capital company or venture capital fund under this Chapter.
  5. The income accruing or arising to or received by the venture capital company or venture capital fund during a tax year from investments made in venture capital undertaking, if not paid or credited to the person referred to in sub-section (1), shall be deemed to have been credited to the account of the said person—
    1. on the last day of the tax year; and
    2. in the same proportion in which such person would have been entitled to receive the income had it been paid in the tax year.
  6. Any income which has been included in total income of the person referred to in sub-section (1) in a tax year, on account of it having accrued or arisen in the said tax year, shall not be included in the total income of such person in the tax year in which such income is actually paid to him by the venture capital company or the venture capital fund.
  7. Nothing contained in this section shall apply in respect of any income accruing or arising to, or received by, a person from investments made in a venture capital company or venture capital fund, being an investment fund specified in section 224(10)(a).
  8. For the purposes of this section, “venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in Schedule V (Note 4).

Tax on income of unit holder and business trust

  1. Irrespective of anything contained in any other provisions of this Act, any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust.
  2. Subject to the provisions of sections 196, 197 and 198, the total income of a business trust shall be charged to tax at the maximum marginal rate.
  3. If in any tax year, the distributed income or any part thereof, received by a unit holder from the business trust is of the nature as referred to in Schedule V (Table: Sl. No. 3) or (Table: Sl. No. 4), then, such distributed income or part thereof shall be deemed to be income of such unit holder and shall be charged to tax as income of the tax year.
  4. The provisions of sub-section (1) shall not apply in respect of any sum referred to in section 92(2)(k) received by a unit holder from a business trust.
  5. Any person responsible for making payment of the income distributed on behalf of a business trust to a unit holder, shall furnish a statement to the unit holder and the prescribed authority, within such time and in such form and manner, as may be prescribed, giving the details of the nature of the income paid during the tax year and such other details, as may be prescribed.

Tax on income of investment fund and its unit holders

  1. Irrespective of anything contained in any other provision of this Act and subject to the provisions of this section, where a person, being a unit holder of an investment fund, out of investments made in the investment fund, receives any income or any income accrues or arises to him, such income shall be chargeable to income-tax in the same manner as if, it were the income accruing or arising to, or received by, such person, had the investments made by the investment fund been made directly by him.
  2. Where in any tax year, the net result of computation of total income of the investment fund, without giving effect to the provisions of Schedule V (Table: Sl. No. 1), is a loss under any head of income and such loss cannot be or is not wholly set off against income under any other head of income of the said tax year, then out of such loss,—
    1. the loss arising to the investment fund as a result of the computation under the head “Profits and gains of business or profession”, if any, shall be—
      1. allowed to be carried forward and it shall be set off by the investment fund as per the provisions of Chapter VII; and
      2. ignored for the purposes of sub-section (1);
    2. the loss other than the loss referred to in clause (a), if any, shall also be ignored for the purposes of sub-section (1), if such loss has arisen in respect of a unit which has not been held by the unit holder for at least twelve months.
  3. The loss other than the loss under the head “Profits and gains of business or profession”, if any, accumulated at the level of investment fund as on the 31st March, 2019, shall be—
    1. deemed to be the loss of a unit holder who held the unit on the 31st March, 2019 in respect of the investments made by him in the investment fund, in the same manner as provided in sub-section (1); and
    2. allowed to be carried forward by such unit holder for the remaining period calculated from the year in which the loss had occurred for the first time taking that year as the first year and shall be set off by him as per the provisions of Chapter VII.
  4. The loss so deemed under sub-section (3) shall not be available to the investment fund on or after the 1st April, 2019.
  5. The income paid or credited by the investment fund shall be deemed to be of the same nature and in the same proportion in the hands of the person referred to in sub-section (1), as if it had been received by, or had accrued or arisen to, the investment fund during the tax year subject to the provisions of sub-section (2).
  6. The total income of the investment fund shall be charged to tax—
    1. at the rate or rates as specified in the Finance Act of the relevant year, where such fund is a company or a firm; or
    2. at maximum marginal rate, in any other case.
  7. The income accruing or arising to, or received by, the investment fund, during a tax year, if not paid or credited to the person referred to in sub-section (1), shall subject to the provisions of sub-section (2), be deemed to have been credited to the account of the said person on the last day of the tax year in the same proportion in which such person would have been entitled to receive the income had it been paid in the tax year.
  8. Any income, which has been included in total income of the person referred to in sub-section (1) in a tax year, on account of it having accrued or arisen in the said tax year, shall not be included in the total income of such person in the tax year in which such income is actually paid to him by the investment fund.
  9. The person responsible for crediting or making payment of the income on behalf of an investment fund and the investment fund shall furnish, within such time, as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in the prescribed form and verified in such manner, giving details of the nature of the income paid or credited during the tax year and such other relevant details, as may be prescribed.
  10. For the purposes of this section,—
    1. “investment fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the—
      1. Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 made under Securities and Exchange Board of India Act, 1992 (15 of 1992); or
      2. International Financial Services Centres Authority (Fund Management) Regulations, 2022 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);
    2. “trust” means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law in force; and
    3. “unit” means beneficial interest of an investor in the investment fund or a scheme of the investment fund and shall include shares or partnership interests.

G.—Special provisions relating to income of shipping companies

Income from business of operating qualifying ships

  1. Irrespective of anything contained in sections 26 to 54 (except 50 and 53), in the case of a company, the income from the business of operating qualifying ships—
    1. may, at its option, be computed as per provisions of this Part; and
    2. such income shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.

Tonnage tax scheme

  1. In this Part, a company shall—
    1. be regarded as operating a ship or inland vessel, as the case may be, if it operates any ship or inland vessel, as the case may be, whether owned or chartered by it and includes a case where even a part of the ship or inland vessel, as the case may be, has been chartered in by it in an arrangement such as slot charter, space charter or joint charter;
    2. not be regarded as operating a ship or inland vessel, as the case may be, which has been chartered out by it on bareboat charter-cum-demise terms or on bareboat charter terms for a period exceeding three years.
  2. A tonnage tax company engaged in the business of operating qualifying ships shall compute the profits from such business under the tonnage tax scheme.
  3. The tonnage tax business shall be considered as a separate business distinct from all other activities or business carried on by the company.
  4. The profits referred to in sub-section (2) shall be computed separately from the profits and gains from any other business.
  5. The tonnage tax scheme shall apply only if an option to that effect is made as per section 231.
  6. Where a company engaged in the business of operating qualifying ships,—
    1. is not covered under the tonnage tax scheme; or
    2. has not made an option in respect of the tonnage tax scheme as per section 231,
    the profits and gains of such company from such business shall be computed as per other provisions of this Act.
  7. Subject to the other provisions of this Part,—
    1. the tonnage income, shall be—
      1. computed as per section 227; and
      2. deemed to be the profits chargeable under the head “Profits and gains of business or profession”; and
    2. the relevant shipping income referred to in section 228(1) shall not be chargeable to tax.

Computation of tonnage income

  1. The tonnage income of a tonnage tax company for a tax year shall be the aggregate of the tonnage income of each qualifying ship computed as per sub-sections (2) and (3).
  2. For the purposes of sub-section (1), the tonnage income of each qualifying ship shall be computed as per the following formula:—

    TI = DTI × N

    where,—
    1. TI = the tonnage income of each qualifying ship;
    2. DTI = the daily tonnage income of each qualifying ship;
    3. N = the number of days in the tax year or in part of the tax year in case the ship is operated by the company as a qualifying ship for only part of the tax year.
  3. For the purposes of sub-section (2), the daily tonnage income of a qualifying ship having tonnage referred to in column B of the Table below shall be the amount specified in the corresponding entry in column C thereof.
  4. For the purposes of this Part of the Chapter, the tonnage shall—
    1. mean the tonnage of a ship or inland vessel, as the case may be, indicated in the valid certificate referred to in sub-section (9); and
    2. include the deemed tonnage, being the tonnage in respect of an arrangement of purchase of slots, slot charter and an arrangement of sharing of break-bulk vessel, computed in the manner, as may be prescribed.
  5. The tonnage shall be rounded off to the nearest multiple of hundred tons and for this purpose any tonnage consisting of kilograms shall be ignored and if the tonnage so rounded off is not a multiple of hundred, then, if the last figure in that amount is,—
    1. fifty tons or more, the tonnage shall be increased to the next higher tonnage;
    2. less than fifty tons, the tonnage shall be reduced to the next lower tonnage,
    which is a multiple of hundred and the tonnage so rounded off shall be the tonnage of the ship for the purposes of this section.
  6. No deduction or set off shall be allowed in computing the tonnage income under this Part of the Chapter, irrespective of anything contained in any other provision of this Act.
  7. Where a qualifying ship is operated by two or more companies by way of—
    1. joint interest in the ship; or
    2. an agreement for the use of the ship,
    and their respective shares are definite and ascertainable, the tonnage income of each such company shall be an amount equal to a share of income proportionate to its share of that interest.
  8. Subject to the provisions of sub-section (7), where two or more companies are operators of a qualifying ship, the tonnage income of each company shall be computed as if each had been the only operator.
  9. For the purposes of this Part,—
    1. the tonnage of a ship or inland vessel, as the case may be, shall be determined as per the valid certificate indicating its tonnage;
    2. “valid certificate” means,—
      1. in case of ships registered in India,—
        1. having a length of less than twenty-four metres, a certificate issued under the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under the Merchant Shipping Act, 1958 (44 of 1958);
        2. having a length of twenty-four metres or more, an international tonnage certificate issued under the provisions of the Convention on Tonnage Measurement of Ships, 1969, as specified in the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under the said Act;
      2. in case of ships registered outside India, a licence issued by the Director-General of Shipping under section 406 or 407 of the Merchant Shipping Act, 1958 (44 of 1958) specifying the net tonnage on the basis of Tonnage Certificate issued by the Flag State Administration, where the ship is registered or any other evidence acceptable to the Director-General of Shipping produced by the ship owner while seeking permission for chartering in the ship;
      3. in case of inland vessel registered in India, a certificate of registration issued under the Inland Vessels Act, 2021 (24 of 2021).

Relevant shipping income and exclusion from book profit

  1. For the purposes of this Part, the relevant shipping income of a tonnage tax company means—
    1. its profits from core activities referred to in sub-section (3); and
    2. its profits from incidental activities referred to in sub-section (7).
  2. Where the aggregate of all such incomes specified in sub-section (1)(b) exceeds 0.25% of the turnover from core activities referred to in sub-section (3), such excess shall not form part of the relevant shipping income for the purposes of this Part and shall be taxable under the other provisions of this Act.
  3. The core activities of a tonnage tax company shall be—
    1. its activities from operating qualifying ships; and
    2. other ship-related or inland vessel related activities, as the case may be, as follows:—
      1. shipping contracts in respect of—
        1. earning from pooling arrangements;
        2. contracts of affreightment;
      2. specific shipping trades, being—
        1. on-board or on-shore activities of passenger ships or inland vessels comprising of fares and food and beverages consumed on-board;
        2. slot charters, space charters, joint charters, feeder services and container box leasing of container shipping.
  4. For the purposes of sub-section (3)(b)(i),—
    1. “pooling arrangement” means an agreement between two or more persons for providing services through a pool or operating one or more ships or inland vessels as the case may be, and sharing earnings or operating profits on the basis of mutually agreed terms;
    2. “contract of affreightment” means a service contract under which a tonnage tax company agrees to transport a specified quantity of specified products at a specified rate, between designated loading and discharging ports over a specified period.
  5. The Central Government, if it considers necessary or expedient so to do, may, by notification, exclude any activity referred to in sub-section (3)(b) or prescribe the limit up to which such activities shall be included in the core activities for the purposes of this section.
  6. Every notification issued under this Part shall be laid, as soon as may be after it is issued, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification, or both Houses agree that the notification should not be issued, the notification shall thereafter have effect only in such modified form or be of no effect; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that notification.
  7. The incidental activities shall be the activities which are incidental to the core activities and as may be prescribed for the purpose.
  8. Where a tonnage tax company operates any ship or inland vessels as the case may be, which is not a qualifying ship, the income attributable to operating such non-qualifying ship shall be computed under other provisions of this Act.
  9. Where any goods or services held for the purposes of—
    1. tonnage tax business are transferred to any other business carried on by a tonnage tax company; or
    2. any other business carried on by such tonnage tax company are transferred to the tonnage tax business,
    and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the tonnage tax business does not correspond to the market value of such goods or services as on the date of the transfer, then, the relevant shipping income under this section shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date.
  10. In sub-section (9), “market value”, in relation to any goods or services, means the price that such goods or services would ordinarily fetch on sale in the open market.
  11. Where, in the opinion of the Assessing Officer, the computation of the relevant shipping income in the manner specified in sub-section (9) presents exceptional difficulties, he may compute such income on such reasonable basis as he considers fit.
  12. Where it appears to the Assessing Officer that, owing to the close connection between the tonnage tax company and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the tonnage tax company more than the ordinary profits which might be expected to arise in the tonnage tax business, the Assessing Officer shall, in computing the relevant shipping income of the tonnage tax company for the purposes of this Part, take income as may reasonably be deemed to have been derived therefrom.
  13. In this Part, in case the relevant shipping income of a tonnage tax company is a loss, then, such loss shall be ignored for the purposes of computing tonnage income.
  14. Where a tonnage tax company also carries on any business or activity other than the tonnage tax business, common costs attributable to the tonnage tax business shall be determined on a reasonable basis.
  15. 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 purposes of the tonnage tax business and for the other business.
  16. The book profit or loss derived from the activities of a tonnage tax company, referred to in sub-section (1), shall be excluded from the book profit of the company for the purposes of section 206(1)(c).

Depreciation and gains relating to tonnage tax assets

  1. For the purposes of computing depreciation under section 230(1)(d), the depreciation for the first tax year of the tonnage tax scheme (herein referred to as the first tax year) shall be computed on the written down value of the qualifying ships as specified under sub-section (2).
  2. The written down value of the block of assets, being ships or inland vessels, as the case may be, as on the first day of the first tax year, shall be divided in the ratio of the book written down value of the qualifying ships (herein referred to as the qualifying assets) and the book written down value of the non-qualifying ships (herein referred to as the other assets), as per the following formula:—

    D = A × B / (B + C)

    E = A × C / (B + C)

    where,—
    1. D = the written down value of the block of qualifying assets as on the first day of the tax year;
    2. E = the written down value of the block of other assets as on the first day of the tax year;
    3. 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;
    4. B = the aggregate of book written down value of qualifying assets as on the last day of the preceding tax year; and
    5. 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 constitute a separate block of assets for the purposes of this Part.
  4. Where an asset forming part of a block of—
    1. qualifying assets begins to be used for purposes other than the tonnage tax business, an appropriate portion of the written down value allocable 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,—
      1. A = the appropriate portion of the written down value allocable to the asset which begins to be used for purposes other than the tonnage tax business;
      2. B = the written down value of block of qualifying assets as on the first day of the tax year;
      3. C = the book written down value of qualifying asset which begins to be used for purpose other than the tonnage tax business; and
      4. D = the aggregate of book written down value of all the assets forming the block of qualifying assets.
    2. 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,—
      1. E = the appropriate proportion of the written down value allocable to the asset which begins to be used for purposes of tonnage tax business;
      2. F = the written down value of block of other assets as on the first day of the tax year;
      3. G = book written down value of the other asset which begins to be used for tonnage tax business; and
      4. 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-section (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

  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—
    1. 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;
    2. 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 relates to any of the tax years when the company is under the tonnage tax scheme;
    3. no deduction shall be allowed under Chapter VIII in relation to the profits and gains from the business of operating qualifying ships; and
    4. 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 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.

  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—
    1. approving the option for tonnage tax scheme; or
    2. 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 provisions 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.
  9. An option for tonnage tax scheme shall cease to have effect from the tax year, in which—
    1. the qualifying company ceases to be a qualifying company;
    2. a default is made in complying with the provisions contained in section 232(1) to (20);
    3. the tonnage tax company is excluded from the tonnage tax scheme under section 234;
    4. 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,—
    1. which on its own, opts out of the tonnage tax scheme; or
    2. which makes a default in complying with the provisions contained in section 232(1) to (20); or
    3. 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

  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—
    1. book profit from the business of operating qualifying ships; and
    2. 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 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 continues 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—
    1. for acquiring a new ship or new inland vessel, as the case may be, for the purposes of the business of the company; and
    2. 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-section (1),—
    1. has been utilised for any purpose other than that referred to in sub-section (6); or
    2. has not been utilised for the purpose specified in sub-section (6)(a); or
    3. 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—
    1. in a case referred to in clause (a), in the year in which the amount was so utilised;
    2. in a case referred to in clause (b), in the year immediately following eight years specified in sub-section (6); or
    3. 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.
  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.
  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 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 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.
  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 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—
    1. maintains separate books of account in respect of the business of operating qualifying ships; and
    2. 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 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 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

  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.
    1. 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.
  2. 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.
  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 amalgamated 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 scheme, 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

  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 arrangement 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—
    1. a person other than a tonnage tax company; or
    2. a tonnage tax company in respect of its non-tonnage tax activities.
  3. For the purposes of this section, “tax advantage” includes—
    1. the determination of—
      1. the allowance for any expense or interest; or
      2. 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
    2. a transaction or arrangement which produces to the tonnage tax company 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.
  5. The Assessing Officer shall pass an order under sub-section (4), after—
    1. 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
    2. 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 advantage 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

  1. For the purposes of this Part—
    1. “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.
    2. “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.
    3. “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).
    4. “factory ship” includes a vessel providing processing services in respect of processing of the fishing produce.
    5. “fishing vessel” shall have the meaning assigned to it in section 3(12) of the Merchant Shipping Act, 1958 (44 of 1958).
    6. “inland vessel” shall have the meaning assigned to it in section 3(q) of the Inland Vessels Act, 2021 (24 of 2021).
    7. “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.
    8. “qualifying company” means a company, if—
      1. it is an Indian company;
      2. the place of effective management of the company is in India;
      3. it owns at least one qualifying ship; and
      4. the main object of the company is to carry on the business of operating ships.
      For the purposes of sub-clause (ii), “place of effective management of the company” means—
      1. the place where the board of directors of the company or its executive directors make their decisions; or
      2. in a case where the board of directors routinely approve the commercial 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.
    9. “qualifying ship” means a ship or inland vessel, as the case may be, if—
      1. it is a seagoing ship or vessel or inland vessel, as the case may be, of fifteen net tonnage or more;
      2. 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 the said Act or an inland vessel registered under the Inland Vessels Act, 2021 (24 of 2021), as the case may be; and
      3. 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—
      1. 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;
      2. fishing vessels;
      3. factory ships;
      4. pleasure crafts;
      5. harbour and river ferries;
      6. offshore installations; and
      7. a qualifying ship which is used as a fishing vessel for more than thirty days during a tax year.
    10. “seagoing ship” means a ship, if it is certified as such by the competent authority of any country.
    11. “tonnage income” means the income of a tonnage tax company computed as per the provisions of this Part of the Chapter.
    12. “tonnage tax activities” means the activities referred to in section 228(3) and (7).
    13. “tonnage tax business” means the business of operating qualifying ships giving rise to relevant shipping income as referred to in section 228(1).
    14. “tonnage tax company” means a qualifying company in relation to which tonnage tax option is in force.
    15. “tonnage tax scheme” means a scheme for computation of profits and gains of business of operating qualifying ships under the provisions of this Part.

Search for your query