Section 115VF — Tonnage Income

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

Section 115VF — Tonnage 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 deeming and the exemption

Section 115VF does two things. It directs that tonnage income be computed under s.115VG and deems that figure to be profits chargeable under 'Profits and gains of business or profession'; and it provides that, once so taxed, the 'relevant shipping income' referred to in s.115V-I(1) 'shall not be chargeable to tax'. The presumptive tonnage figure thus SUBSTITUTES for the actual shipping profit — the actual relevant shipping income drops out of charge altogether.

2. Place in the charging architecture

The Supreme Court in Trans Asian Shipping identified the charging provision of the Scheme as 's.115VA read with s.115VF and s.115VG'. Section 115VF is the hinge: it links the gateway (s.115VA) to the computation table (s.115VG) and simultaneously switches off normal taxation of the relevant shipping income. This is why no deduction or set-off can reduce the tonnage figure (s.115VG(6), s.115VL) — there is no 'real' profit being taxed against which expenses could be allowed.

3. Boundary of the exemption

The exemption in s.115VF is confined to 'relevant shipping income' as defined in s.115V-I(1) — core and (capped) incidental activities. Receipts outside that perimeter (non-qualifying-ship income, liquidated damages, the excess of incidental income over the one-fourth-per-cent cap) remain chargeable under the ordinary provisions — see s.115V-I and Dredging Corporation of India.

B. STATUTORY POSITION (verbatim operative text)

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

115VF. Subject to the other provisions of this Chapter, the tonnage income shall be computed in accordance with section 115VG and the income so computed shall be deemed to be the profits chargeable under the head “Profits and gains of business or profession” and the relevant shipping income referred to in sub-section (1) of section 115V-I shall not be chargeable to tax.

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

C. AUTHORITIES

Direct authority — s.115VF is one of the three provisions the Supreme Court identified as constituting the charge.

C-1 Charging provision of the Scheme (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 Perimeter of the exempted 'relevant shipping income'

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-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.

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.