Interpretation.
235.
In this Part,—
- (a) “bareboat charter” means hiring of a ship or inland vessel, as the case may be, for a stipulated period on terms which give the charterer possession and control of the ship or new inland vessel, as the case may be, including the right to appoint the master and crew;
- (b) “bareboat charter-cum-demise” means a bareboat charter where the ownership of the ship or inland vessel, as the case may be, is intended to be transferred after a specified period to the company to whom it has been chartered;
- (c) “Director-General of Shipping” means the Director-General of Shipping appointed by the Central Government under section 7(1) of the Merchant Shipping Act, 1958;
- (d) “factory ship” includes a vessel providing processing services in respect of processing of the fishing produce;
- (e) “fishing vessel” shall have the meaning assigned to it in section 3(12) of the Merchant Shipping Act, 1958;
- (f) “inland vessel” shall have the meaning assigned to it in section 3(q) of the Inland Vessels Act, 2021;
- (g) “pleasure craft” means a ship or inland vessel, as the case may be, of a kind whose primary use is for the purposes of sport or recreation;
- (h) “qualifying company” means a company, if— (i) it is an Indian company; (ii) the place of effective management of the company is in India; (iii) it owns at least one qualifying ship; and (iv) the main object of the company is to carry on the business of operating ships, and for the purposes of sub-clause (ii), “place of effective management of the company” means— (A) the place where the board of directors of the company or its executive directors, make their decisions; or (B) in a case where the board of directors routinely approve the commercial and strategic decisions made by the executive directors or officers of the company, the place where such executive directors or officers of the company perform their functions. (i) “qualifying ship” means a ship or inland vessel, as the case may be, if— (i) it is a seagoing ship or vessel or inland vessel, as the case may be, of fifteen net tonnage or more; (ii) it is a ship registered under the Merchant Shipping Act, 1958, or a ship registered outside India in respect of which a licence has been issued by the Director-General of Shipping under section 406 or 407 of said Act or an inland vessel registered under the Inland Vessels Act, 2021, as the case may be; and (iii) a valid certificate in respect of such ship or inland vessel, as the case may be, indicating its net tonnage is in force, but does not include— (A) a seagoing ship or vessel or inland vessel, as the case may be, if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land; (B) fishing vessels; (C) factory ships; (D) pleasure crafts; (E) harbour and river ferries; (F) offshore installations; and (G) a qualifying ship which is used as a fishing vessel for more than thirty days during a tax year;
- (j) “seagoing ship” means a ship, if it is certified as such by the competent authority of any country;
- (k) “tonnage income” means the income of a tonnage tax company computed as per the provisions of this Part;
- (l) “tonnage tax activities” means the activities referred to in section 228(3) and (7);
- (m) “tonnage tax business” means the business of operating qualifying ships giving rise to relevant shipping income as referred to in section 228(1);
- (n) “tonnage tax company” means a qualifying company in relation to which tonnage tax option is in force;
- (o) “tonnage tax scheme” means a scheme for computation of profits and gains of business of operating qualifying ships under the provisions of this Part
Explanation
Section Summary:
Section 235 of the Income Tax Act provides definitions for key terms used in the context of the tonnage tax scheme. This scheme is a special tax regime for shipping companies, allowing them to compute their taxable income based on the tonnage of their ships rather than actual profits. The section clarifies terms like "bareboat charter," "qualifying company," "qualifying ship," and "tonnage income," among others, to ensure proper application of the tonnage tax provisions.
Key Changes:
- New Definitions Introduced: Terms like "bareboat charter-cum-demise," "factory ship," "pleasure craft," and "tonnage tax activities" are explicitly defined for the first time in this section.
- Clarification on "Qualifying Company": The definition now includes specific conditions, such as the company being an Indian entity, having its place of effective management in India, and owning at least one qualifying ship.
- Exclusions for "Qualifying Ship": The section explicitly excludes certain types of vessels (e.g., fishing vessels, factory ships, pleasure crafts) from being considered as qualifying ships under the tonnage tax scheme.
Practical Implications:
- For Shipping Companies: Companies operating ships must ensure they meet the criteria for being a "qualifying company" and that their ships qualify under the definition of "qualifying ship" to benefit from the tonnage tax scheme.
- Compliance Burden: Companies must maintain proper documentation, such as certificates indicating net tonnage and registration details, to prove eligibility.
- Exclusions Impact: Companies using ships for excluded purposes (e.g., fishing, recreation) cannot claim benefits under the tonnage tax scheme.
Critical Concepts:
- Bareboat Charter: A leasing arrangement where the charterer gains full control of the ship, including the right to appoint the master and crew.
- Bareboat Charter-Cum-Demise: A specific type of bareboat charter where ownership of the ship is intended to transfer to the charterer after a specified period.
- Qualifying Company: An Indian company with its place of effective management in India, owning at least one qualifying ship, and primarily engaged in ship operations.
- Qualifying Ship: A seagoing or inland vessel of 15 net tonnage or more, registered under applicable laws, and not used for excluded purposes like fishing or recreation.
- Tonnage Income: Income computed under the tonnage tax scheme, based on the ship's tonnage rather than actual profits.
Compliance Steps:
- Verify Eligibility: Ensure the company meets the criteria for a "qualifying company" and that its ships qualify under the definition of "qualifying ship."
- Maintain Documentation: Keep valid certificates of net tonnage, registration details, and other relevant documents.
- Monitor Usage: Ensure ships are not used for excluded purposes (e.g., fishing, recreation) for more than the allowed period (e.g., 30 days for fishing vessels).
- File Returns: Compute and report tonnage income as per the provisions of the tonnage tax scheme.
Examples:
- Example 1: A shipping company owns a seagoing vessel of 20 net tonnage, registered under the Merchant Shipping Act, 1958. The vessel is used exclusively for transporting cargo. The company qualifies for the tonnage tax scheme as it meets all criteria for a "qualifying company" and "qualifying ship."
- Example 2: A company owns a pleasure craft used primarily for recreational purposes. Even if the vessel meets the tonnage requirement, it is excluded from the tonnage tax scheme under Section 235(i)(C).
- Example 3: A company charters a ship under a bareboat charter-cum-demise arrangement, intending to take ownership after five years. The company must ensure the ship qualifies under the tonnage tax scheme and complies with the conditions outlined in Section 235.
This section ensures clarity in applying the tonnage tax scheme, helping shipping companies understand their eligibility and compliance requirements.