Section 115VZC of ITA, 1961 : Section 115Vzc: Exclusion From Tonnage Tax Scheme

Explanation using Example

Imagine a shipping company, Oceanic Transports Ltd., which is currently benefitting from the tonnage tax scheme under the Income-tax Act, 1961. The company enters into a leaseback arrangement with a subsidiary, where it sells a ship to the subsidiary and immediately leases it back. This arrangement is noted by the tax authorities as potentially being designed to create a tax advantage rather than for genuine commercial reasons.

The Assessing Officer issues a notice to Oceanic Transports Ltd. to show cause why it should not be excluded from the tonnage tax scheme. Despite the company's arguments, the Assessing Officer, with the approval of the Chief Commissioner, determines that the transaction was not bona fide and was primarily for tax advantage. Consequently, an order is issued excluding Oceanic Transports Ltd. from the tonnage tax scheme, effective from the beginning of the year in which the transaction occurred.

Oceanic Transports Ltd. would then be subject to the normal tax provisions instead of the beneficial tonnage tax scheme from that year onwards due to the transaction being deemed manipulative.