TaxTMI 
TaxTMI 
Temporary Cessation and Qualifying Status under India's Tonnage Tax Regime : Clause 232(22)-(23) of the Income Tax Bill, 2025 Vs. Section 115VZA of the Income-tax Act, 1961
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....ning what constitutes a "qualifying ship" and the implications of temporary cessations of operations or changes in a ship's qualifying status. Clause 232(22)-(23) of the Income Tax Bill, 2025, and Section 115VZA of the Income-tax Act, 1961, both address the legal effects of temporary cessation in the operation of qualifying ships and the consequences when a ship temporarily ceases to meet the qualifying criteria. These provisions play a crucial role in determining the continuity of tax benefits under the tonnage tax regime and have significant practical implications for shipping companies, tax authorities, and the broader maritime industry. This commentary provides a detailed analysis of Clause 232(22)-(23) of the Income Tax Bill, 202....
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....sis of Clause 232(22) of the Income Tax Bill, 2025 Text: "A temporary cessation (as against permanent cessation) of operating any qualifying ship by a company shall not be considered as a cessation of operating of such qualifying ship and the company shall be deemed to be operating such qualifying ship for the purposes of this Part." Interpretation: * The provision distinguishes between "temporary" and "permanent" cessation of operations. Only a permanent cessation would result in the ship no longer being considered as operated by the company for tonnage tax purposes. * In the event of a temporary cessation, the law creates a legal fiction: the company is "deemed" to be operating the qualifying ship, thereby preserving the continuity ....
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....meet the criteria of a "qualifying ship." * In such a case, the ship is not to be treated as a qualifying ship for the relevant period, and the company cannot claim tonnage tax benefits in respect of that ship. Scope and Application: * The provision applies even if the ship resumes qualifying status later. For the period of non-qualification, the ship is excluded from the tonnage tax computation. * Reasons for temporary non-qualification may include lapses in certification, failure to comply with safety or environmental standards, or other regulatory breaches. Legal Principles and Ambiguities: * The provision ensures that the tonnage tax regime is only available for ships that are in continuous compliance with the qualifying crite....
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..... 4. Key Comparative Points Feature Clause 232(22)-(23) of the Income Tax Bill, 2025 Section 115VZA of the Income-tax Act, 1961 Temporary cessation of operations Deemed continuity of operation for TTS purposes Deemed continuity of operation for TTS purposes Temporary loss of qualifying status Ship not considered qualifying during period of non-qualification Ship not considered qualifying during period of non-qualification Inclusion of inland vessels Explicitly included Included via 2025 amendment (w.e.f. 01-04-2026) Reference to "Part" vs "Chapter" "Part" (as per Bill structure) "Chapter" (as per 1961 Act structure) Legislative clarity Clear, comprehensive language Aligned post-amendment; previously less....
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....ation is a practical necessity. * Promotion of Compliance: By denying benefits during periods of non-qualification, the law incentivizes companies to maintain high standards of regulatory compliance. Potential Issues and Ambiguities * Definition of "Temporary": The absence of a statutory definition for "temporary" may lead to disputes. Factors such as the duration of cessation, intention to resume, and factual circumstances will likely guide interpretation. * Retroactive Application: The 2025 amendment to Section 115VZA, effective from 01-04-2026, may raise transitional questions for inland vessels. * Overlap with Other Provisions: The provisions must be read in harmony with other conditions for tonnage tax eligibility, such as tho....