Section 33AC allowed a Government company, or a public company formed and registered in India with the main object of operating ships, a deduction of up to fifty per cent of the profits from the business of operating ships, so far as that amount was debited to the profit and loss account and credited to a reserve account. For five assessment years from AY 2001-02 to AY 2005-06 the limit was read as the whole of the profits. No allowance was made for reserves exceeding twice the aggregate of paid-up capital, general reserves and share premium.
The reserve had to be used within eight years after the year of credit for acquiring a new ship and, until then, for the business, and not for dividends, remittance abroad or creating assets outside India.
Operative consequences
Reserve money used for other purposes was deemed profit of the year of misuse (sub-section (3)(a), (i)).
Reserve not used to acquire a new ship was deemed profit of the year following the eight-year period (sub-section (3)(b), (ii)).
If a ship acquired from the reserve was transferred within three years from the end of the year of acquisition, otherwise than in a demerger, the amount used was deemed profit of the year of transfer (sub-section (3)(c), (iii)).
If such a ship was transferred later and the proceeds were not used for a new ship within one year, the reserve portion was deemed profit (sub-section (4)).
Status
The section is not operative for AY 2026-27. The third proviso to sub-section (1) states that “no deduction shall be allowed under this section for any assessment year commencing on or after the 1st day of April, 2005”. The Finance Act, 2026 does not amend this section.
The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject there is no provision in the Income-tax Act, 2025.
Function in the statutory architecture
Section 33AC allowed a Government company, or a public company formed and registered in India with the main object of operating ships, a deduction of up to fifty per cent of the profits from the business of operating ships, so far as that amount was debited to the profit and loss account and credited to a reserve account. For five assessment years from AY 2001-02 to AY 2005-06 the limit was read as the whole of the profits. No allowance was made for reserves exceeding twice the aggregate of paid-up capital, general reserves and share premium.
The reserve had to be used within eight years after the year of credit for acquiring a new ship and, until then, for the business, and not for dividends, remittance abroad or creating assets outside India.
Operative consequences
Status
The section is not operative for AY 2026-27. The third proviso to sub-section (1) states that “no deduction shall be allowed under this section for any assessment year commencing on or after the 1st day of April, 2005”. The Finance Act, 2026 does not amend this section.
The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject there is no provision in the Income-tax Act, 2025.