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TMI BlogDuration and Cessation of Tonnage Tax Option : Clause 231(8)-(9) of the Income Tax Bill, 2025 Vs. Section 115VQ of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... e transparency and compliance. In India, the tonnage tax regime was introduced through Chapter XII-G of the Income-tax Act, 1961, with Section 115VQ specifically governing the duration and cessation of the tonnage tax option. The Income Tax Bill, 2025, proposes to recast and modernize these provisions, with Clause 231(8)-(9) addressing the period of validity and circumstances for cessation of the tonnage tax option. This commentary provides a detailed analysis of these clauses, their legislative intent, practical implications, and a comparative assessment with the existing statutory framework u/s 115VQ of the Income-tax Act, 1961. Objective and Purpose The primary objective of the tonnage tax scheme is to provide a stable, predictable, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax considerations. * Commencement: The period is counted from the "tax year in which such option is exercised," aligning the operational and fiscal timelines and providing clarity for both taxpayers and the tax administration. * Policy Rationale: A decade-long lock-in period is intended to foster long-term planning and investment in the shipping sector, as companies cannot switch in and out of the regime to exploit temporary tax advantages. Clause 231(9): Cessation of the Tonnage Tax Option Text: "An option for tonnage tax scheme shall cease to have effect from the tax year, in which-" * (a) the qualifying company ceases to be a qualifying company; * If a company no longer meets the prescribed criteria (e.g., ownership, operation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scretion and potential disputes. * Scope of Compliance Defaults: The reference to section 232(1) to (20) underscores the importance of ongoing compliance, but may give rise to interpretational disputes regarding the materiality and nature of defaults that trigger cessation. * Procedural Safeguards: Although not explicitly stated in sub-sections (8)-(9), the broader context (e.g., sub-section (5)) suggests that reasonable opportunity of being heard is provided before adverse orders, ensuring due process. Comparative Analysis with Section 115VQ of the Income-tax Act, 1961 Section 115VQ(1): Period of Validity Text: "An option for tonnage tax scheme, after it has been approved under sub-section (3) of section 115VP, shall remain in force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll. * (d) the qualifying company furnishes to the Assessing Officer, a declaration in writing to the effect that the provisions of this Chapter may not be made applicable to it, * Identical in substance to Clause 231(9)(d), with the 2025 Bill using "Part" instead of "Chapter" for internal consistency. Consequences of Cessation: Both provisions stipulate that post-cessation, the company's profits and gains are to be computed under the general provisions of the Act. Key Comparative Observations * Structural Modernization: The 2025 Bill consolidates and updates references (e.g., section 232(1)-(20) instead of multiple sections), suggesting a move towards greater clarity and administrative efficiency. * Terminological Clarity: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing scope for further regulatory refinement. Ambiguities and Potential Issues in Interpretation * Materiality of Defaults: The Bill does not explicitly distinguish between minor and major compliance defaults. Without further guidance, even technical or procedural lapses could potentially trigger cessation, unless clarified by subordinate legislation or judicial interpretation. * Scope of Section 232(1)-(20): The breadth of compliance requirements u/s 232 may be significantly wider than the three sections referenced in the 1961 Act, potentially increasing the risk of inadvertent disqualification. * Procedural Safeguards: While the Bill provides for a reasonable opportunity of being heard before refusal of approval (sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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