Exclusion of deduction, loss,set off etc.

230(1)

Irrespective of anything contained in any other provision of this Act, in computing the tonnage income of a tonnage tax company for any tax year (herein referred to as the “relevant tax year”) in which it is chargeable to tax as per this Part—

• (a) sections 28 to 52 shall apply as if every loss, allowance or deduction referred to therein and relating to or allowable for any of the relevant tax years, had been given full effect to for that tax year itself;
• (b) no loss referred to in section 108(1) or (2)(a) or 109 or 112(1) or 116(1), in so far as such loss relates to the business of operating qualifying ships of the company, shall be carried forward or set off where such loss relates to any of the tax years when the company is under the tonnage tax scheme;
• (c) no deduction shall be allowed under Chapter VIII in relation to the profits and gains from the business of operating qualifying ships; and
• (d) in computing the depreciation allowance under section 33, the written down value of any asset used for the purposes of the tonnage tax business shall be computed as if the company has claimed and has been actually allowed the deduction in respect of depreciation for the relevant tax years.

230(2)

Section 112 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 tax years when the company is under the tonnage tax scheme.

230(3)

The losses referred to in sub-section (2) shall not be available for set off against any income other than relevant shipping income in any tax year beginning on or after the company exercises its option under section 231.

230(4)

Any apportionment necessary to determine the losses referred to in sub-section (2) shall be made on a reasonable basis.

Explanation

Section Summary:

Section 230 of the new income tax law deals with the computation of tonnage income for companies opting for the tonnage tax scheme. It outlines specific rules for the exclusion of deductions, losses, and set-offs related to the business of operating qualifying ships. The section ensures that companies under the tonnage tax scheme cannot carry forward or set off certain losses or claim deductions that would otherwise be available under general tax provisions.

Key Changes:

1. Exclusion of Loss Carryforward and Set-Off: Losses related to the business of operating qualifying ships cannot be carried forward or set off during the period the company is under the tonnage tax scheme.
2. No Deductions for Tonnage Tax Business: Deductions under Chapter VIII (e.g., deductions for certain payments or expenditures) are not allowed for profits and gains from the tonnage tax business.
3. Depreciation Allowance Adjustment: The written-down value of assets used in the tonnage tax business is computed as if depreciation had been claimed and allowed, even if it was not actually claimed.
4. Pre-Tonnage Tax Scheme Losses: Losses incurred before opting for the tonnage tax scheme can only be set off against relevant shipping income and not against other income.

Practical Implications:

• For Tonnage Tax Companies: Companies under the tonnage tax scheme must adjust their tax computations to exclude certain deductions and losses. This simplifies tax calculations but limits the ability to offset losses from other income streams.
• Loss Utilization: Losses incurred before opting for the tonnage tax scheme can only be used against shipping income, reducing flexibility in tax planning.
• Depreciation Adjustments: Companies must compute depreciation as if it had been claimed, which may affect the written-down value of assets for future tax purposes.

Critical Concepts:

• Tonnage Tax Scheme: A special tax regime for shipping companies where tax is computed based on the tonnage of ships rather than actual profits.
• Qualifying Ships: Ships that meet specific criteria under the tonnage tax scheme.
• Written-Down Value (WDV): The value of an asset after accounting for depreciation, used to compute depreciation allowances.
• Relevant Shipping Income: Income derived from the operation of qualifying ships under the tonnage tax scheme.

Compliance Steps:

1. Adjust Loss Calculations: Ensure that losses related to qualifying ships are not carried forward or set off during the tonnage tax period.
2. Exclude Deductions: Do not claim deductions under Chapter VIII for profits from the tonnage tax business.
3. Compute Depreciation: Calculate the written-down value of assets as if depreciation had been claimed, even if it was not.
4. Apportion Pre-Tonnage Losses: If applicable, apportion losses incurred before opting for the tonnage tax scheme on a reasonable basis and set them off only against relevant shipping income.

Examples:

• Scenario 1: A shipping company opts for the tonnage tax scheme in 2023. It had a loss of ₹10 crore in 2022 from its shipping business. Under Section 230(2), this loss can only be set off against relevant shipping income in 2023 and cannot be used to offset other income.
• Scenario 2: A company under the tonnage tax scheme owns a ship with a written-down value of ₹50 crore. Even if the company did not claim depreciation in 2023, it must compute the WDV as if depreciation had been claimed, affecting future depreciation calculations.

This section ensures clarity and consistency in the tax treatment of tonnage tax companies while limiting certain tax benefits to maintain the integrity of the tonnage tax scheme.