Section 115VM — Exclusion of Loss

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

Section 115VM — Exclusion of loss

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. Wiping pre-option losses

Section 115VM deals with losses attributable to the tonnage tax business that ACCRUED BEFORE the company opted into the Scheme. Section 72 is to apply as if those losses had been set off against relevant shipping income in the option years [sub-s.(1)] — i.e. they are deemed absorbed and exhausted during the option period even though tonnage income is computed presumptively. Such losses cannot be set off against any income other than relevant shipping income in any year after the option is exercised [sub-s.(2)], and any apportionment to identify them is made on a reasonable basis [sub-s.(3)].

2. Rationale and effect

The provision prevents a company from carrying pre-option shipping losses into, and beyond, the tonnage years to shelter OTHER income. The price of entering a low-tax presumptive regime is that the company's accumulated shipping losses are notionally consumed against the (exempt) tonnage stream. Coupled with s.115VL(ii) (no carry-forward/set-off of option-period qualifying-ship losses), s.115VM ensures the qualifying-ship business is fully ring-fenced for loss purposes on both sides of entry into the Scheme.

B. STATUTORY POSITION (verbatim operative text)

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

115VM. (1) Section 72 shall apply in respect of any losses that have accrued to a company before its option for tonnage tax scheme and which are attributable to its tonnage tax business, as if such losses had been set off against the relevant shipping income in any of the previous years when the company is under the tonnage tax scheme.

(2) The losses referred to in sub-section (1) shall not be available for set off against any income other than relevant shipping income in any previous year beginning on or after the company exercises its option under section 115VP.

(3) Any apportionment necessary to determine the losses referred to in sub-section (1) shall be made on a reasonable basis.

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

C. AUTHORITIES

Candour note: No reported decision construes s.115VM directly. The nearest authority is the Supreme Court's framing of the Scheme as a closed, ring-fenced presumptive regime, of which the loss-exclusion rules form part.

C-1 Ring-fenced presumptive regime (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 Closed computation — no loss/deduction leakage

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).

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.