Section 115VS — Prohibition to Opt for Tonnage Tax Scheme in Certain Cases

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

Section 115VS — Prohibition to opt for tonnage tax scheme in certain cases

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 ten-year re-entry bar

Section 115VS disqualifies a qualifying company from opting into the Scheme for TEN YEARS where it (i) on its own opts out, or (ii) defaults in complying with s.115VT (reserve), s.115VU (training) or s.115VV (charter-in limit), or (iii) is excluded from the Scheme by an order under s.115VZC(1). The ten years run from the date of opting out, default, or order, as the case may be. The provision is the disciplinary counterweight to the elective, beneficial regime: a company that abandons or abuses the bargain cannot re-enter at will.

2. Relationship with cessation and anti-abuse

Section 115VS is triggered by the same events that cause cessation under s.115VQ(2)(b)-(d), and its sharpest edge attaches to a s.115VZC exclusion (which itself follows a finding of abuse under s.115VZB). It must therefore be read with ss.115VQ, 115VZB and 115VZC. By contrast, ordinary expiry of a ten-year term is dealt with by renewal under s.115VR, not by this bar.

B. STATUTORY POSITION (verbatim operative text)

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

115VS. A qualifying company, which, on its own, opts out of the tonnage tax scheme or makes a default in complying with the provisions of section 115VT or section 115VU or section 115VV or whose option has been excluded from tonnage tax scheme in pursuance of an order made under sub-section (1) of section 115VZC, shall not be eligible to opt for tonnage tax scheme for a period of ten years from the date of opting out or default or order, as the case may be.

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

C. AUTHORITIES

Candour note: No reported decision construes s.115VS directly. It links to the anti-abuse provisions; the authority below (on the chapter's self-contained anti-diversion machinery) is the nearest in point, with the Supreme Court framing.

C-1 Self-contained discipline of the Scheme

Van Oord India (P) Ltd v. DCIT — [2023] 155 taxmann.com 462 (Mumbai - ITAT) [also TS-605-ITAT-2019(Mum)-TP], AY 2009-10

Forum: Income-tax Appellate Tribunal, Mumbai Bench (tribunal-stage order).

Provisions: Chapter X (transfer pricing, ss.92 to 92F) read with Chapter XII-G; ss.115V-I(7) and 115V-I(8); s.115VE (separate business).

Facts / Issue: The assessee, an Indian subsidiary of a Netherlands dredging group, carried on dredging through qualifying ships under TTS as well as other operations. The TPO sought to apply arm's-length transfer-pricing adjustments to its international transactions.

Held: To the extent income is earned from operating qualifying ships and taxed under TTS, the general transfer-pricing provisions of Chapter X do not apply — Chapter XII-G is a complete, self-contained presumptive code and s.115V-I itself supplies bespoke anti-diversion machinery (sub-ss.(7) and (8): substitution of market value for intra-company transfers, and recomputation where a close connection produces more than ordinary profits). An ordinary ALP adjustment cannot be layered on tonnage income.

Ratio / why it matters: Authority that Chapter XII-G ousts the normal Chapter X transfer-pricing machinery for qualifying-ship income, and that ss.115V-I(7)-(8) (with the anti-abuse provisions in ss.115VZB-115VZC) are the Chapter's own self-contained safeguards against income shifting.

C-2 Purposive framing (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.