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TMI Blogcomputation of tonnage income where ships are jointly operated or where multiple companies are involved in the operation of a qualifying ship : Clause 227(7)-(8) of Income Tax Bill, 2025 Vs. Section 115VH of Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... d for determining the taxable income of shipping companies based on the tonnage of ships rather than actual profits. This approach is intended to enhance competitiveness, reduce administrative burden, and align Indian law with international practices. Clause 227 of the Income Tax Bill, 2025, is the proposed legislative provision addressing the computation of tonnage income for shipping companies opting for this regime. Within this clause, sub-sections (7) and (8) specifically address the computation of tonnage income in cases where ships are jointly operated or where multiple companies are involved in the operation of a qualifying ship. These provisions are directly analogous to Section 115VH of the Income-tax Act, 1961, which currently go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies jointly operate a qualifying ship, either through joint ownership or by agreement for its use, and where their respective shares are "definite and ascertainable." In such cases, the provision mandates that each company's tonnage income be computed in proportion to its share in the joint interest or agreement. * This approach is consistent with the general legal principle of taxation based on beneficial ownership and economic interest. By requiring proportional allocation, the law ensures that each company is taxed only on the income attributable to its actual stake in the ship's operation, thereby preventing both over- and under-taxation. * The requirement that shares be "definite and ascertainable" is significant, as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consortium arrangements where shares may fluctuate or be subject to adjustment. * Overlap Between Sub-sections (7) and (8): The drafting of Clause 227(8) as "subject to" sub-section (7) clarifies the hierarchy but may still leave room for disputes over whether a particular arrangement falls under (7) or (8), especially where documentation is incomplete or ambiguous. * Interaction with International Arrangements: Given the cross-border nature of shipping, there may be cases where the allocation of tonnage income under Indian law interacts with foreign tax laws, raising issues of double taxation or non-taxation. Practical Implications 1. Impact on Shipping Companies For shipping companies, these provisions provide clarity and predic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax laws of other jurisdictions. Companies must be mindful of potential mismatches in the allocation of income, which could give rise to double taxation or disputes over taxing rights. Comparative Analysis with Section 115VH of the Income-tax Act, 1961 Structural and Substantive Parity A close reading of Clause 227(7)-(8) and Section 115VH reveals that the provisions are virtually identical in both structure and substance. Both set out a two-step approach: * Where shares are definite and ascertainable, allocate income proportionately (sub-section (7) / sub-section (1)). * Where not, compute income for each company as if it were the sole operator (sub-section (8) / sub-section (2)). The use of nearly identical language ensures con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certainable Explicitly provided in sub-section (7) Explicitly provided in sub-section (1) No substantive difference Independent computation where shares are not definite Explicitly provided in sub-section (8) Explicitly provided in sub-section (2) No substantive difference Interaction with broader tonnage tax regime Integrated with updated definitions and procedures (e.g., certificates, deemed tonnage, inland vessels) Operates within the older framework Potential for improved clarity and administration under the 2025 Bill Potential Areas for Reform or Clarification * Clarification of "Definite and Ascertainable": Given the practical importance of this phrase, legislative or administrative guidance on its meaning cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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