Section 115VD — Qualifying Ship

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

Section 115VD — Qualifying ship

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 most litigated definition in the Chapter

Section 115VD is the gatekeeper of the Scheme and the source of almost all reported tonnage-tax litigation. A 'qualifying ship' must satisfy three positive conditions — (a) it is a seagoing ship/vessel (or, from 1-4-2026, an inland vessel) of 15 net tonnage or more; (b) it is registered under the Merchant Shipping Act, 1958, or registered abroad with a Director-General of Shipping licence under s.406/407 (or an inland vessel registered under the Inland Vessels Act, 2021); and (c) a valid net-tonnage certificate is in force — and must escape eight exclusions, of which the most contested is clause (i): a ship 'if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land'.

2. The 'normally provided on land' exclusion — West Asia Maritime

The Chennai Tribunal (Third Member) in West Asia Maritime held that clause (i) is aimed at FLOATING LAND-TYPE SERVICES — the British model lists retail outlets, restaurants, hotels, casinos, prisons, radio stations and offices — and not at the bona fide ocean carriage of cargo between two Indian ports. The Revenue's argument that coal 'could' move by rail/road, and so was a service 'normally provided on land', was rejected as far-fetched; coastal shipping is squarely within the Scheme. Four M Maritime followed this on materially identical facts (coal between Indian ports).

3. The 'offshore installation' exclusion — Jaggon International

Clause (vi) excludes 'offshore installations'. In Jaggon International the Delhi High Court held that a self-propelled drilling vessel registered under the Merchant Shipping Act that sails from site to site is a qualifying ship, not an offshore installation — the latter being fixed at a site for a purpose and dismantled/shifted thereafter. Registration under the Merchant Shipping Act and mobility are the markers.

4. The certificate condition and slot charters

Condition (c) (valid tonnage certificate) must be read with the Supreme Court's slot-charter holding: where income arises from slot/space charters, the company need not produce a ship-specific certificate, because such income is captured through 'deemed tonnage' under s.115VG(4) and not through any identified qualifying ship (Trans Asian Shipping).

B. STATUTORY POSITION (verbatim operative text)

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

115VD. For the purposes of this Chapter, a ship or inland vessel, as the case may be, is a qualifying ship if—

(a) it is a seagoing ship or vessel, or inland vessel, as the case may be, of fifteen net tonnage or more;

(b) 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 section 407 of the Merchant Shipping Act, 1958 (44 of 1958) or an inland vessel registered under the Inland Vessels Act, 2021 (24 of 2021), as the case may be; and

(c) 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—

(i) 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;

(ii) fishing vessels;

(iii) factory ships;

(iv) pleasure crafts;

(v) harbour and river ferries;

(vi) offshore installations;

(vii) [***]

(viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year.

Inland-vessel words in the opening text and clauses (a), (b), (c) and (i) inserted by the Finance Act, 2025 w.e.f. 1-4-2026. Clause (vii) stands omitted. Unamended by the Finance Act, 2026.

C. AUTHORITIES

Direct authority — s.115VD is the most judicially construed provision of the Chapter.

C-1 'Normally provided on land' exclusion — coastal shipping qualifies

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.

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-2 'Offshore installation' exclusion — mobile drilling vessel qualifies

CIT v. Jaggon International Ltd — [2013] 214 Taxman 630 / 35 taxmann.com 614 (Delhi)

Forum: Delhi High Court.

Provisions: Section 115VD — 'qualifying ship'; exclusion clause (vi) 'offshore installations'.

Facts / Issue: The assessee's vessel 'D' was engaged in drilling operations at different locations and was registered under the Merchant Shipping Act, 1958. The AO held it was not a qualifying ship but an 'offshore installation' (an excluded category) and denied TTS.

Held: A self-propelled vessel that moves from site to site to perform drilling and is registered under the Merchant Shipping Act is a 'qualifying ship' under s.115VD and is NOT an 'offshore installation'. An offshore installation is fixed for a specific purpose at a site and, the purpose achieved, is dismantled and shifted; a mobile drilling vessel does not answer that description. TTS was available.

Ratio / why it matters: Authority on the boundary between a 'qualifying ship' and the excluded category 'offshore installations' in s.115VD; registration under the Merchant Shipping Act and the mobility of the vessel are the decisive markers.

C-3 Certificate condition and slot 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.