Section 115V-I — Relevant Shipping Income

CHAPTER XII-G — SPECIAL PROVISIONS RELATING TO INCOME OF SHIPPING COMPANIES (TONNAGE TAX)

Section 115V-I — Relevant shipping income

Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise

Chapter / Part: Chapter XII-G (Special Provisions Relating to Income of Shipping Companies — the Tonnage Tax Scheme), inserted by the Finance (No. 2) Act, 2004 w.e.f. 1-4-2005 (AY 2005-06).

Finance Act, 2026: No amendment. The Finance Act, 2026 does not touch any section of Chapter XII-G (verified against the Finance Act, 2026 text).

Finance Act, 2025: Extended the Scheme to inland vessels (Inland Vessels Act, 2021) — inland-vessel words inserted across the Chapter w.e.f. 1-4-2026; s.115VP timeline/IFSC provisos also added. Text below is the in-force position for AY 2026-27.

A. SECTION COMMENTARY

1. The income that the Scheme shelters

Section 115V-I defines 'relevant shipping income' — the income that, once tonnage tax is paid, escapes normal taxation (s.115VF). It comprises (i) profits from CORE activities [sub-s.(2)] and (ii) profits from INCIDENTAL activities [sub-s.(5)]. Core activities are the operating of qualifying ships plus listed ship-related activities — pooling arrangements, contracts of affreightment, on-board/on-shore passenger-ship activities, and slot/space/joint charters, feeder services and container-box leasing. Incidental activities are those prescribed (Rule 11R) — maritime consultancy, cargo loading/unloading, ship-management fees, maritime education/recruitment. A proviso caps incidental income: any excess over one-fourth per cent of core-activity turnover falls out of relevant shipping income and is taxed normally.

2. The perimeter — Dredging Corporation of India

The Visakhapatnam Tribunal in Dredging Corporation of India held that liquidated damages recovered from contractors are NOT relevant shipping income — they flow from the counterparties' failure to perform on time, not from operating qualifying ships or any notified incidental activity. They may be incidental business income, but they are taxed under the ordinary provisions. The decision is the clearest illustration that 'connected with shipping' is not the test; the receipt must answer the statutory description of a core or prescribed incidental activity.

3. Built-in anti-diversion machinery — sub-sections (7) and (8)

Section 115V-I carries its own transfer-pricing-type safeguards. Sub-section (7) requires intra-company transfers of goods/services between the tonnage tax business and other business to be valued at MARKET VALUE (with an AO power to adopt a reasonable basis in exceptional difficulty). Sub-section (8) empowers the AO, where a 'close connection' produces more than ordinary profits to the tonnage tax company, to take the income reasonably deemed to arise. The Mumbai Tribunal in Van Oord India relied on this self-contained machinery to hold that the general Chapter X transfer-pricing provisions do not separately apply to qualifying-ship income. The Explanation also directs that a loss in relevant shipping income be IGNORED for computing tonnage income (consistent with the no-set-off philosophy).

4. Non-qualifying-ship income and Central Government power

Sub-section (6) computes income from any non-qualifying ship under the ordinary provisions. Sub-sections (3)-(4) let the Central Government, by notification (laid before Parliament), exclude or cap listed core activities. The Finance Act, 2025 broadened sub-s.(2)(ii) to 'other ship-related or inland vessel related activities' w.e.f. 1-4-2026.

B. STATUTORY POSITION (verbatim operative text)

Section 115V-I, Income-tax Act, 1961 (Chapter XII-G), as in force on and after 1 April 2026 (key operative limbs reproduced):

115V-I. (1) For the purposes of this Chapter, the relevant shipping income of a tonnage tax company means— (i) its profits from core activities referred to in sub-section (2); (ii) its profits from incidental activities referred to in sub-section (5): Provided that where the aggregate of all such incomes specified in clause (ii) exceeds one-fourth per cent of the turnover from core activities referred to in sub-section (2), such excess shall not form part of the relevant shipping income for the purposes of this Chapter and shall be taxable under the other provisions of this Act.

(2) The core activities of a tonnage tax company shall be— (i) its activities from operating qualifying ships; and (ii) other ship-related or inland vessel related activities, as the case may be, mentioned as under:— (A) shipping contracts in respect of— (i) earning from pooling arrangements; (ii) contracts of affreightment ... (B) specific shipping trades, being— (i) on-board or on-shore activities of passenger ships comprising of fares and food and beverages consumed on board; (ii) slot charters, space charters, joint charters, feeder services, container box leasing of container shipping.

(5) The incidental activities shall be the activities which are incidental to the core activities and which may be prescribed for the purpose.

(6) Where a tonnage tax company operates any ship, or inland vessel, as the case may be, which is not a qualifying ship, the income attributable to operating such non-qualifying ship shall be computed in accordance with the other provisions of this Act.

(7) Where any goods or services held for the purposes of tonnage tax business are transferred to any other business carried on by a tonnage tax company, or where any goods or services held for the purposes of any other business carried on by such tonnage tax company are transferred to the tonnage tax business and, in either case, the consideration ... does not correspond to the market value ..., 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: Provided that where, in the opinion of the Assessing Officer, the computation ... presents exceptional difficulties, the Assessing Officer may compute such income on such reasonable basis as he may deem fit.

(8) 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 ... is so arranged that the business transacted ... 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 ... take the amount of income as may reasonably be deemed to have been derived therefrom. Explanation.—For the purposes of this Chapter, 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.

Core-activities heading in sub-s.(2)(ii) substituted, and inland-vessel words in sub-s.(6), by the Finance Act, 2025 w.e.f. 1-4-2026. Sub-sections (3) and (4) (Central Government notification power) reproduced in full in the Act. Unamended by the Finance Act, 2026.

C. AUTHORITIES

Direct authority on the perimeter of relevant shipping income and on the chapter's own anti-diversion machinery.

C-1 Perimeter of 'relevant shipping income' — liquidated damages excluded

Dredging Corporation of India Ltd v. ACIT — ITAT Visakhapatnam, ITA Nos. 211/Viz/2020 & 54/Viz/2021 and CO 48/Viz/2021, order dated 9 September 2022

Forum: Income-tax Appellate Tribunal, Visakhapatnam Bench (tribunal-stage order).

Provisions: Section 115V-I — 'relevant shipping income' (profits from core activities and incidental activities); Chapter XII-G computation.

Facts / Issue: The assessee, a public-sector dredging company that had opted for TTS, treated liquidated damages recovered from contractors (for failure to execute work within the stipulated time) as part of its shipping/tonnage income.

Held: Liquidated damages are not profit from the 'core activities' or 'incidental activities' of a tonnage tax company as defined in s.115V-I read with the Rules. Their source was the counterparties' failure to perform contracts on time, not the operation of qualifying ships or any prescribed incidental activity. Though such damages may be incidental BUSINESS income, they are not 'relevant shipping income'; they are taxed under the normal provisions of the Act and are not sheltered by the Scheme.

Ratio / why it matters: The leading recent authority on the perimeter of 'relevant shipping income' under s.115V-I — receipts merely connected with a shipping business, but not flowing from operating qualifying ships or a notified incidental activity, are taxed normally. Confirms the core / incidental / one-fourth-per-cent-cap architecture of the section.

C-2 Sub-ss.(7)-(8) self-contained anti-diversion — ousts Chapter X TP

Van Oord India (P) Ltd v. DCIT — [2023] 155 taxmann.com 462 (Mumbai - ITAT) [also TS-605-ITAT-2019(Mum)-TP], AY 2009-10

Forum: Income-tax Appellate Tribunal, Mumbai Bench (tribunal-stage order).

Provisions: Chapter X (transfer pricing, ss.92 to 92F) read with Chapter XII-G; ss.115V-I(7) and 115V-I(8); s.115VE (separate business).

Facts / Issue: The assessee, an Indian subsidiary of a Netherlands dredging group, carried on dredging through qualifying ships under TTS as well as other operations. The TPO sought to apply arm's-length transfer-pricing adjustments to its international transactions.

Held: To the extent income is earned from operating qualifying ships and taxed under TTS, the general transfer-pricing provisions of Chapter X do not apply — Chapter XII-G is a complete, self-contained presumptive code and s.115V-I itself supplies bespoke anti-diversion machinery (sub-ss.(7) and (8): substitution of market value for intra-company transfers, and recomputation where a close connection produces more than ordinary profits). An ordinary ALP adjustment cannot be layered on tonnage income.

Ratio / why it matters: Authority that Chapter XII-G ousts the normal Chapter X transfer-pricing machinery for qualifying-ship income, and that ss.115V-I(7)-(8) (with the anti-abuse provisions in ss.115VZB-115VZC) are the Chapter's own self-contained safeguards against income shifting.

C-3 Core activities incl. slot/space/joint charters (Supreme Court)

CIT v. Trans Asian Shipping Services (P) Ltd — (2016) 385 ITR 637 (SC) / [2016] 71 taxmann.com 35 / (2016) 241 Taxman 30 (SC)

Forum / Bench: Supreme Court of India; T.S. Thakur CJI, A.K. Sikri J and R. Banumathi J. Judgment dated 5 July 2016, affirming the Kerala High Court and the Cochin Bench of the Tribunal.

Provisions: Sections 115VA, 115VB, 115VF, 115VG (including the s.115VG(4) Explanation on 'deemed tonnage') and 115VX, read with Rule 11Q; Chapter XII-G generally.

Issue: Whether income from 'slot charter' operations of a tonnage tax company can be included in 'tonnage income' under the Tonnage Tax Scheme (TTS) even where those operations are carried on in ships that are NOT the company's own 'qualifying ships' — and whether production of the tonnage certificate referred to in s.115VX is a pre-condition for computing such slot-charter income.

Held: Allowing the assessee, the Court held that although only income from operating a 'qualifying ship' is computed under Chapter XII-G, s.115VB expressly treats a company as 'operating a ship' even where only a PART of a ship has been chartered in under an arrangement such as slot charter, space charter or joint charter. A slot-charter arrangement is made with a shipping line and not in relation to an identified ship, so the carrying vessel (and its certificate) cannot be identified. The 'deemed tonnage' mechanism in the Explanation to s.115VG(4) — covering purchase of slots, slot charter and sharing of break-bulk vessel — was introduced precisely to capture such arrangements; to insist on a s.115VX certificate for slot charters would render deemed tonnage otiose. The s.115VX certificate requirement therefore does NOT apply to slot/space-charter operations and the slot-charter income is includible in tonnage income.

Ratio / why it matters: The leading — and only — Supreme Court authority on Chapter XII-G. It settles the architecture of the Scheme: (i) the charging provision is s.115VA read with s.115VF and s.115VG; (ii) the TTS is a 'preferential regime of taxation' to be construed to advance its object of making Indian shipping globally competitive (Rakesh Mohan Committee, January 2002); and (iii) 'deemed tonnage' is a distinct head of tonnage not dependent on a ship-specific certificate. The Court relied on CBDT Circular No. 5/2005 dated 15-7-2005 and reaffirmed that CBDT circulars explaining a scheme bind the Department.

Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced verbatim from the Income-tax Act, 1961 (text as in force on and after 1 April 2026, incorporating the inland-vessel insertions made by the Finance Act, 2025 with effect from 1 April 2026). Citations are stated as reported; tribunal and stay-stage orders are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.