Income Tax 2025

Appearance

Amalgamation and demerger. ​

233(1) ​

Where there has been an amalgamation of a company with another company or companies, then, subject to the other provisions of this section, the provisions relating to the tonnage tax scheme shall, as far as may be, apply to the amalgamated company, if it is a qualifying company.

233(2) ​

Where the amalgamated company is not a tonnage tax company, it shall exercise an option for tonnage tax scheme under section 231(1) within three months from the date of the approval of the scheme of amalgamation.

233(3) ​

Where the amalgamating companies are tonnage tax companies, the provisions of this Part shall, as far as may be, apply to the amalgamated company for such period as the option for tonnage tax scheme which has the longest unexpired period continues to be in force.

233(4) ​

Where one of the amalgamating companies is a qualifying company as on the 1st October, 2004 and which has not exercised the option for tonnage tax scheme before the 1st January, 2005, the provisions of this Part shall not apply to the amalgamated company and the income of the amalgamated company from the business of operating qualifying ships shall be computed as per the other provisions of this Act.

233(5) ​

Where in a scheme of demerger, the demerged company transfers its business to the resulting company before the expiry of the option for tonnage tax scheme, then, subject to the other provisions of this Part, the tonnage tax scheme shall, as far as may be, apply to the resulting company for the unexpired period, if it is a qualifying company.

233(6) ​

The option for tonnage tax scheme in respect of the demerged company shall remain in force for the unexpired period of the tonnage tax scheme if it continues to be a qualifying company.

Explanation

Section Summary: ​

This section deals with the application of the tonnage tax scheme in cases of amalgamation (merger of companies) and demerger (splitting of a company). The tonnage tax scheme is a special tax regime for shipping companies, where tax is calculated based on the tonnage (size) of ships rather than actual profits. This section ensures that the tonnage tax scheme continues to apply appropriately when companies undergo restructuring through amalgamation or demerger.

Key Changes: ​

  1. Amalgamation:

    • If an amalgamated company is a qualifying company (eligible for tonnage tax), the tonnage tax scheme applies to it.
    • If the amalgamated company is not already a tonnage tax company, it must opt for the tonnage tax scheme within three months of the amalgamation approval.
    • If the amalgamating companies are already tonnage tax companies, the amalgamated company inherits the longest unexpired period of the tonnage tax option.

  2. Demerger:

    • If a demerged company transfers its business to a resulting company, the tonnage tax scheme applies to the resulting company for the unexpired period of the scheme, provided it is a qualifying company.
    • The demerged company retains the tonnage tax option for the unexpired period if it remains a qualifying company.

  3. Exclusion:

    • If an amalgamating company was eligible for tonnage tax as of 1st October 2004 but did not opt for it before 1st January 2005, the amalgamated company cannot avail of the tonnage tax scheme. Its income from shipping operations will be taxed under regular provisions.

Practical Implications: ​

  1. For Shipping Companies:

    • Companies undergoing amalgamation or demerger must carefully assess their eligibility for the tonnage tax scheme and ensure timely compliance with the option requirements.
    • Failure to opt for the tonnage tax scheme within the stipulated three-month period could result in losing the benefits of the scheme.

  2. For Tax Compliance:

    • Companies must maintain proper documentation of amalgamation or demerger schemes and ensure that the tonnage tax option is exercised within the prescribed timeline.
    • The tax treatment of income from shipping operations will vary depending on whether the tonnage tax scheme applies or not.

Critical Concepts: ​

  1. Tonnage Tax Scheme:

    • A special tax regime for shipping companies where tax is calculated based on the net tonnage of ships rather than actual profits. It is designed to promote the shipping industry.

  2. Qualifying Company:

    • A company engaged in the business of operating qualifying ships and meeting the eligibility criteria for the tonnage tax scheme.

  3. Amalgamation:

    • The merger of two or more companies into one, where the amalgamated company takes over the assets and liabilities of the amalgamating companies.

  4. Demerger:

    • The splitting of a company into two or more entities, where the demerged company transfers part of its business to the resulting company.

Compliance Steps: ​

  1. Amalgamation:

    • Determine if the amalgamated company is a qualifying company.
    • If not already a tonnage tax company, file an option for the tonnage tax scheme within three months of amalgamation approval.
    • If amalgamating companies are tonnage tax companies, ensure the amalgamated company adopts the longest unexpired period of the tonnage tax option.

  2. Demerger:

    • Ensure the resulting company is a qualifying company.
    • Apply the tonnage tax scheme to the resulting company for the unexpired period of the scheme.
    • Retain the tonnage tax option for the demerged company if it remains a qualifying company.

Examples: ​

  1. Amalgamation Example:

    • Company A (a tonnage tax company with 5 years left in its tonnage tax option) and Company B (a non-tonnage tax company) amalgamate to form Company C.
    • Company C must opt for the tonnage tax scheme within three months of amalgamation approval.
    • If Company C qualifies, it will inherit Company A’s 5-year tonnage tax option.

  2. Demerger Example:

    • Company X (a tonnage tax company with 3 years left in its tonnage tax option) demerges its shipping business into Company Y.
    • Company Y (the resulting company) will have the tonnage tax scheme apply for the remaining 3 years, provided it is a qualifying company.
    • Company X retains the tonnage tax option for the unexpired period if it continues to operate qualifying ships.

This section ensures continuity of the tonnage tax scheme during corporate restructuring, providing clarity and stability for shipping companies.