Section 115VK — Depreciation

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

Section 115VK — Depreciation

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. Splitting the block of assets

Section 115VK is the most mechanically intricate provision in the Chapter. On entry into the Scheme, the written-down value (WDV) of the block of assets 'being ships' is divided, as on the first day of the first previous year, into a block of QUALIFYING assets and a block of OTHER assets, in the ratio of the BOOK WDV of the qualifying ships to that of the non-qualifying ships [sub-ss.(1)-(4)]. The qualifying-asset block becomes a separate block [sub-s.(3)]. Sub-sections (5)-(7) provide for assets migrating between the two uses (the appropriate portion of WDV is moved proportionately, and depreciation for the year is split day-wise). Explanation 1 deems the split WDV to have been brought forward from the preceding year; Explanation 2 defines 'book WDV'.

2. Why a notional depreciation track is kept

Although no depreciation is ALLOWED on qualifying ships under the Scheme (the tonnage figure is a closed presumptive measure — s.115VG(6), s.115VL(iv)), s.115VL(iv) requires the WDV to be reduced each year AS IF depreciation had been claimed and allowed. Section 115VK builds and maintains that notional block. Its practical importance is twofold: (i) it fixes the cost base for capital gains when a qualifying ship is sold (s.115VN computes gains using the 'written down value of the block of qualifying assets' as defined by reference to s.115VK(2)); and (ii) it ensures a clean re-entry into normal depreciation if the option later ceases.

3. The revaluation safeguard

The proviso to sub-s.(4)(a) directs that any change in asset value by revaluation AFTER the Finance (No. 2) Act, 2004 received Presidential assent is ignored — preventing companies from inflating the qualifying-asset WDV (and hence the future capital-gains base) by revaluation on entry.

B. STATUTORY POSITION (verbatim operative text)

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

115VK. (1) For the purposes of computing depreciation under clause (iv) of section 115VL, the depreciation for the first previous year of the tonnage tax scheme (hereafter in this section referred to as the first previous year) shall be computed on the written down value of the qualifying ships as specified under sub-section (2).

(2) The written down value of the block of assets, being ships or inland vessels, as the case may be, as on the first day of the first previous year, shall be divided in the ratio of the book written down value of the qualifying ships (hereafter in this section referred to as the qualifying assets) and the book written down value of the non-qualifying ships (hereafter in this section referred to as the other assets).

(3) The block of qualifying assets as determined under sub-section (2) shall constitute a separate block of assets for the purposes of this Chapter.

(4) For the purposes of sub-section (2), the book written down value of the block of qualifying assets and the block of other assets shall be computed ... [by taking the book WDV of each asset as on the first day of the previous year from the books as on the last day of the preceding previous year]: Provided that any change in the value of the assets consequent to their revaluation after the date on which the Finance (No. 2) Act, 2004 receives the assent of the President shall be ignored; ... [the book WDV of all qualifying and other assets is aggregated and the ratio determined].

(5) Where an asset forming part of a block of qualifying assets begins to be used for purposes other than the tonnage tax business, an appropriate portion of the written down value allocable to such asset shall be reduced from the written down value of that block and shall be added to the block of other assets. [Explanation provides the proportionate computation.]

(6) Where an asset forming part of a block of other assets begins to be used for tonnage tax business, an appropriate portion of the written down value allocable to such asset shall be reduced from the written down value of the block of other assets and shall be added to the block of qualifying asset. [Explanation provides the proportionate computation.]

(7) For the purposes of computing depreciation under clause (iv) of section 115VL in respect of an asset mentioned in sub-sections (5) and (6), depreciation computed for the previous year shall be allocated in the ratio of the number of days for which the asset was used for the tonnage tax business and for purposes other than tonnage tax business.

Explanation 1.—... depreciation on the block of qualifying assets and block of other assets so created shall be allowed as if such written down value referred to in sub-section (2) had been brought forward from the preceding previous year. Explanation 2.—“book written down value” means the written down value as appearing in the books of account.

Inland-vessel words in sub-s.(2) inserted by the Finance Act, 2025 w.e.f. 1-4-2026. Sub-sections (4)-(6) abridged for length (full text in the Act). Unamended by the Finance Act, 2026.

C. AUTHORITIES

Candour note: No reported decision construes the s.115VK block-splitting mechanism directly. Its operative significance is for capital gains (s.115VN) and for the closed presumptive computation; the authorities below frame that closed character.

C-1 Notional depreciation within the closed code

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 Purposive framing 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.

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.