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TMI BlogExamination of "Qualifying Ship" : Clause 235(i) of the Income Tax Bill, 2025 Vs. Section 115VD of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... est practices. As the maritime sector evolves with technological advancements, regulatory changes, and shifts in global trade patterns, the legal definitions and exclusions within these provisions must remain dynamic and responsive. This commentary undertakes a comprehensive analysis of Clause 235(i) of the Income Tax Bill, 2025, juxtaposed with Section 115VD of the Income-tax Act, 1961. The objective is to dissect each element of the statutory definitions, interpret their implications, and assess their practical impact on stakeholders. Further, the commentary will highlight the legislative intent, explore ambiguities, and offer a comparative perspective to elucidate the trajectory of legal reform in this domain. Objective and Purpose The primary objective of both Clause 235(i) and Section 115VD is to delineate the boundaries of what constitutes a "qualifying ship" for the purposes of the tonnage tax regime. The tonnage tax scheme was introduced to provide a simplified and predictable method of taxation for shipping companies, thereby enhancing their global competitiveness and encouraging the growth of the Indian shipping industry. The legislative intent behind these provisions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to focus on commercial shipping. * Registration Requirement The provision requires that the ship must be registered under the Merchant Shipping Act, 1958, or, if registered outside India, must possess a licence issued by the Director-General of Shipping u/ss 406 or 407 of the same Act. For inland vessels, registration under the Inland Vessels Act, 2021, is mandated. This ensures regulatory oversight and compliance with safety and operational norms. * Valid Certificate Indicating Net Tonnage The requirement of a valid certificate in force serves as an objective criterion to verify the vessel's tonnage and operational status. It adds a layer of regulatory authentication, reducing the risk of misclassification. 2. Exclusions from the Definition The provision explicitly excludes the following categories: * Provision of Goods or Services Normally Provided on Land This exclusion targets vessels whose primary function is not maritime transport but the provision of ancillary services (e.g., floating hotels, restaurants, casinos), thereby preventing misuse of the tonnage tax regime. * Fishing Vessels Fishing activities are not considered part of the core shipping bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For the purposes of this Chapter, a ship or inland vessel, as the case may be, is a qualifying ship if- (a) it is a sea going ship or vessel, or inland vessel, as the case may be, of fifteen net tonnage or more; (b) 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 u/s 406 or section 407 of the Merchant Shipping Act, 1958 or an inland vessel registered under the Inland Vessels Act, 2021, as the case may be; (c) 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- (i) a sea going 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; (ii) fishing vessels; (iii) factory ships; (iv) pleasure crafts; (v) harbour and river ferries; (vi) offshore installations; (vii) [omitted]; (viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year." 1. Substantive Similarities Both provisions: * Set a min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tonnage tax regime. Companies must ensure strict compliance with registration, certification, and operational use requirements. * Operational Planning: Companies operating dual-use vessels (e.g., cargo and fishing) must monitor and document usage carefully to avoid disqualification due to the thirty-day rule. 2. For Regulators and Tax Authorities * Compliance and Enforcement: The clarity of the definition facilitates enforcement and reduces scope for disputes. However, ambiguities regarding "services normally provided on land" may necessitate interpretational guidance. * Inter-Agency Coordination: The reliance on registration and certification under other statutes (Merchant Shipping Act, Inland Vessels Act) underscores the need for coordination between tax authorities and maritime regulators. 3. For the Maritime Industry * Incentivization: The tonnage tax regime, as delimited by these provisions, continues to incentivize investment in commercial shipping, supporting India's ambitions to expand its maritime footprint. * Exclusions: The exclusion of fishing, factory, and pleasure vessels ensures that the regime remains targeted and that fiscal benefits are not dissip ..... X X X X Extracts X X X X X X X X Extracts X X X X
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