Section 115VX — Determination of Tonnage

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

Section 115VX — Determination of tonnage

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 certificate regime

Section 115VX fixes HOW tonnage is proved. The tonnage of a ship is determined by its 'valid certificate' indicating tonnage [sub-s.(1)(a)]; sub-s.(1)(b) defines 'valid certificate' — for Indian ships, a certificate under the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 (length-based, the international tonnage certificate under the 1969 Convention for ships of 24 m or more); for ships registered abroad, a DG Shipping licence under s.406/407 of the Merchant Shipping Act specifying net tonnage on the basis of the flag-State tonnage certificate. From 1-4-2026 a new sub-clause (iii) recognises, for an inland vessel registered in India, a certificate under the Inland Vessels Act, 2021.

2. The slot-charter exception — Trans Asian Shipping

Section 115VX is the provision the Supreme Court read DOWN for slot charters in Trans Asian Shipping. Because slot/space charters generate 'deemed tonnage' under s.115VG(4) and are not referable to an identified qualifying ship, the Court held that the s.115VX certificate requirement does NOT apply to such income; to insist on a ship-specific certificate would defeat the deemed-tonnage mechanism. For owned/chartered qualifying ships, however, the valid certificate remains the foundation of the tonnage computation.

B. STATUTORY POSITION (verbatim operative text)

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

115VX. (1) For the purposes of this Chapter,— (a) the tonnage of a ship or inland vessel, as the case may be, shall be determined in accordance with the valid certificate indicating its tonnage; (b) “valid certificate” means,—

(i) in case of ships registered in India— (a) having a length of less than twenty-four metres, a certificate issued under the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under the Merchant Shipping Act, 1958 (44 of 1958); (b) having a length of twenty-four metres or more, an international tonnage certificate issued under the provisions of the Convention on Tonnage Measurement of Ships, 1969, as specified in the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under the Merchant Shipping Act, 1958 (44 of 1958);

(ii) in case of ships registered outside India, a licence issued by the Director-General of Shipping under section 406 or section 407 of the Merchant Shipping Act, 1958 (44 of 1958) specifying the net tonnage on the basis of Tonnage Certificate issued by the Flag State Administration where the ship is registered or any other evidence acceptable to the Director-General of Shipping produced by the ship owner while seeking permission for chartering in the ship;

(iii) in case of inland vessel registered in India, a certificate issued under the Inland Vessels Act, 2021 (24 of 2021).

Inland-vessel words in sub-s.(1)(a) and the new sub-clause (iii) inserted by the Finance Act, 2025 w.e.f. 1-4-2026. Unamended by the Finance Act, 2026.

C. AUTHORITIES

Direct authority — s.115VX is the certificate provision the Supreme Court held inapplicable to slot-charter (deemed-tonnage) income.

C-1 Certificate requirement read down for slot charters (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.