Section 115VA — Computation of Profits from Business of Operating Qualifying Ships

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

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

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 gateway and the charging provision

Section 115VA is the entry point and, together with ss.115VF and 115VG, the charging provision of the Tonnage Tax Scheme. It opens with a non obstante clause ('Notwithstanding anything to the contrary contained in sections 28 to 43C') and confers an OPTION: a company may compute the income from the business of operating qualifying ships under Chapter XII-G instead of under the normal business-income provisions. The income so computed is deemed to be 'Profits and gains of business or profession'.

Two features deserve emphasis. First, the override is confined to ss.28 to 43C — the normal profit-computation machinery; the rest of the Act (capital gains under ss.45 to 51 via s.115VN, MAT under s.115JB as modified by s.115V-O, the assessment and appeal machinery) continues to apply except where the Chapter says otherwise. Second, the regime is OPTIONAL and elective: it bites only when a valid option under s.115VP is in force (s.115VE(4)).

2. The Supreme Court's characterisation

In Trans Asian Shipping the Supreme Court, relying on CBDT Circular No. 5/2005, expressly identified the charging provision as 's.115VA read with s.115VF and s.115VG' and described the Scheme as a 'preferential regime of taxation' to be construed to advance its object — a low, fixed, predictable tax cost that makes Indian shipping globally competitive. That purposive lens governs the reading of every operative section in the Chapter.

3. Consequence: a self-contained code

Because s.115VA substitutes a presumptive measure for actual profits, the normal computational adjuncts do not attach to tonnage income. The Chennai Tribunal in Four M Maritime applied this to hold that no s.14A/Rule 8D disallowance can be made against income computed under the Chapter — there being no deduction to disallow in a deemed-income computation.

B. STATUTORY POSITION (verbatim operative text)

Section 115VA, Income-tax Act, 1961 (Chapter XII-G):

115VA. Notwithstanding anything to the contrary contained in sections 28 to 43C, 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 the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.

Unamended by the Finance Act, 2025 and the Finance Act, 2026.

C. AUTHORITIES

Direct authority: the Supreme Court has identified s.115VA as the charging provision and characterised the Scheme; the Chennai Tribunal has applied its self-contained character.

C-1 Charging provision and purposive construction (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.

C-2 Self-contained code — no s.14A overlay

ACIT v. Four M Maritime (P) Ltd — [2015] 152 ITD 557 / 56 taxmann.com 348 (Chennai - Trib.)

Forum: Income-tax Appellate Tribunal, Chennai Bench.

Provisions: Section 115VD (qualifying ship); Chapter XII-G read with s.14A and Rule 8D; s.115VL / s.115VG(6).

Held: (i) A ship transporting coal from one Indian port to another is a 'qualifying ship' for TTS (following the coastal-shipping line of West Asia Maritime). (ii) Once shipping income is computed under the self-contained presumptive code of Chapter XII-G, a disallowance under s.14A read with Rule 8D cannot be superimposed on that income — tonnage income is a deemed figure from which no further deduction or set-off is allowed, and correspondingly no s.14A disallowance is made against it.

Ratio / why it matters: Twin authority — reaffirms coastal-shipping eligibility under s.115VD, and establishes that the Chapter XII-G code displaces the normal computational machinery (including s.14A) in respect of tonnage income, supporting the 'general exclusion of deduction and set-off' philosophy of ss.115VL and 115VG(6).

C-3 CBDT's exposition (binding)

CBDT Circular No. 5/2005 dated 15 July 2005 — Explanatory Notes to the Finance (No. 2) Act, 2004

Nature: Departmental circular explaining the newly inserted Tonnage Tax Scheme.

Effect: Describes the Scheme as a 'preferential regime of taxation' and clarifies that the charging provision is s.115VA read with s.115VF and s.115VG. Relied on by the Supreme Court in Trans Asian Shipping (supra), which reaffirmed that CBDT circulars explaining a scheme bind the Department.

On the binding force of CBDT circulars — Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC); Navnit Lal C. Javeri v. K.K. Sen, AAC (1965) 56 ITR 198 (SC); UCO Bank v. CIT (1999) 237 ITR 889 (SC)

Relevance: Expressly invoked by the Supreme Court in Trans Asian Shipping to hold that CBDT circulars explaining the Tonnage Tax Scheme (notably Circular No. 5/2005) bind the Revenue. Useful wherever a beneficial reading of a Chapter XII-G provision is supported by CBDT's contemporaneous exposition.

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.