Section 115VQ — Period for Which Tonnage Tax Option to Remain in Force

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

Section 115VQ — Period for which tonnage tax option to remain in force

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. Ten-year lock-in and the exit triggers

An approved option remains in force for TEN YEARS from the date it is exercised, reckoned from the assessment year relevant to the previous year of exercise [sub-s.(1)]. The ten-year horizon is integral to the bargain: the company commits to the presumptive regime for a decade in exchange for certainty. Sub-section (2) lists the events on which the option CEASES to have effect from the relevant assessment year — (a) the company ceasing to be a qualifying company; (b) default in s.115VT (reserve), s.115VU (training) or s.115VV (charter-in limit); (c) exclusion under s.115VZC (anti-abuse); and (d) the company filing a written declaration opting out — whereupon shipping profits revert to ordinary computation.

2. Interaction with prohibition and renewal

Cessation under s.115VQ(2) feeds the ten-year RE-ENTRY BAR in s.115VS (where cessation is by opting out, default or a s.115VZC order) and the RENEWAL machinery in s.115VR. The provision must therefore be read with ss.115VR, 115VS and 115VZC as a connected exit-and-re-entry code.

B. STATUTORY POSITION (verbatim operative text)

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

115VQ. (1) An option for tonnage tax scheme, after it has been approved under sub-section (3) of section 115VP, shall remain in force for a period of ten years from the date on which such option has been exercised and shall be taken into account from the assessment year relevant to the previous year in which such option is exercised.

(2) An option for tonnage tax scheme shall cease to have effect from the assessment year relevant to the previous year in which— (a) the qualifying company ceases to be a qualifying company; (b) a default is made in complying with the provisions contained in section 115VT or section 115VU or section 115VV; (c) the tonnage tax company is excluded from the tonnage tax scheme under section 115VZC; (d) the qualifying company furnishes to the Assessing Officer, a declaration in writing to the effect that the provisions of this Chapter may not be made applicable to it, and the profits and gains of the company from the business of operating qualifying ships shall be computed in accordance with the other provisions of this Act.

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

C. AUTHORITIES

Candour note: No reported decision construes s.115VQ directly. The provision is the temporal spine of the Scheme; the Supreme Court's purposive framing governs its construction.

C-1 Ten-year presumptive bargain (Supreme Court framing)

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.