Section 115VB — Operating Ships

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

Section 115VB — Operating 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 width of 'operating'

Section 115VB defines the central activity of the Scheme. A company 'operates a ship' if it operates any ship — owned OR chartered — and the definition is expressly extended to include the case 'where even a part of the ship has been chartered in by it in an arrangement such as slot charter, space charter or joint charter'. The proviso pulls in the opposite direction: a company is NOT the operator of a ship it has chartered out on bareboat-charter-cum-demise terms, or on bareboat-charter terms for a period exceeding three years (because in those cases possession/control has passed to the charterer).

2. The slot-charter holding of the Supreme Court

Section 115VB is the textual hook of the only Supreme Court decision on the Chapter. In Trans Asian Shipping the Court read the inclusive limb ('even a part of the ship ... slot charter, space charter or joint charter') together with the 'deemed tonnage' Explanation to s.115VG(4) to hold that slot-charter income is part of the operating-ship business and is computed under TTS even where the slots are taken on ships that are not the company's own qualifying ships. The reasoning: slot/space charters are made with a line, not for an identified ship, and are an accepted global practice without which Indian lines could not bid for contracts of affreightment.

3. From 1 April 2026

The Finance Act, 2025 extended the operating concept to inland vessels (slot/space/joint charter of inland vessels included; bareboat-cum-demise or 3-year-plus bareboat charter-out of an inland vessel excluded).

B. STATUTORY POSITION (verbatim operative text)

Section 115VB, Income-tax Act, 1961 (Chapter XII-G), as in force on and after 1 April 2026:

115VB. For the purposes of this Chapter, a company shall be regarded as operating a ship 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:

Provided that a company shall not be regarded as the operator of 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.

Inland-vessel words inserted by the Finance Act, 2025 w.e.f. 1-4-2026. Unamended by the Finance Act, 2026.

C. AUTHORITIES

Direct authority — s.115VB is the provision construed by the Supreme Court in the slot-charter case.

C-1 Slot / space / joint charter as 'operating' (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 Operating character unaffected by coastal voyages

ACIT v. West Asia Maritime Ltd (Third Member) — [2012] 16 ITR (Trib) 175 (Chennai) / 2011-TIOL-479-ITAT-MAD-TM

Forum / Bench: Income-tax Appellate Tribunal, Chennai — Third Member (Vice-President) reference resolving a difference between the Accountant Member and the Judicial Member; AY 2006-07.

Provisions: Section 115VD(i) (exclusion of a seagoing ship whose main use is the provision of goods or services 'of a kind normally provided on land'); s.115VB.

Facts: Of 10 ships operated by the assessee, the vessel 'M.V. Gem of Ennore' carried thermal coal solely between Indian ports (Haldia / Paradip / Vizag to Ennore / Tuticorin). The AO denied TTS on the footing that coal could equally move by road or rail and was therefore a 'service of a kind normally provided on land' excluded by s.115VD(i).

Held: Coastal operation does not change the operating character of a seagoing ship. Nothing in Chapter XII-G confines TTS to international voyages or excludes coastal shipping; the s.115VD(i) exclusion is aimed at floating land-type services (retail outlets, restaurants, hotels, casinos, offices and the like — drawn from the cognate British tonnage-tax legislation on which the Indian Scheme is modelled), not at the bona fide carriage of cargo between two domestic ports. 'M.V. Gem of Ennore' is a qualifying ship and the assessee is entitled to TTS.

Ratio / why it matters: The leading tribunal authority that coastal / inter-Indian-port shipping qualifies for TTS, and the leading exposition of the s.115VD(i) 'normally provided on land' exclusion. It also endorses recourse to the British tonnage-tax model where the Indian text is in pari materia.

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.