Transfer of profits to Tonnage Tax Reserve Account - Section 115VT - Income Tax - Ready Reckoner - Income Tax

Transfer of profits to Tonnage Tax Reserve Account - Section 115VT Transfer of profits to Tonnage Tax Reserve Account [ Section 115VT(1) ] A tonnage tax company is required to credit to a reserve account referred as Tonnage Tax Reserve Account, an amount not less than 20% of the book profit derived from its core and incidental activities in each previous year to be utilised in the manner laid down in section 115VT(3). However it may transfer a sum in excess of 20% of the book profit and such excess sum transferred shall also be utilised in the manner laid down in section 115VT(3). Where there is book profit from the business of qualifying ship and the book loss from other sources [ Section 115VT(2) ] Where the company has book profit from the business of operating qualifying ships and book loss from any other sources, and consequently, the company is not in a position to create the full or any part of the reserves under section 115VT(1), the company shall create the reserves to the extent possible in that previous year and the shortfall, if any, shall be added to the amount of the reserves required to be created for the following previous year and such shortfall shall be deemed to be part of the reserve requirement of that following previous year. To the extent the shortfall in creation of reserves during a particular previous year is carried forward to the following previous year under this sub-section, the company shall be considered as having created sufficient reserves for the first mentioned previous year. It is not apply in respect of the second year in case the shortfall in creation of reserves continues for two consecutive previous years. Utilisation of tonnage tax reserve [ Section 115VT(4) ] The amount credited to the Tonnage Tax Reserve Account (including the amount credited in excess of 20% of books profits) shall be utilised by the company before the expiry of a period of eight years next following the previous year in which the amount was credited for acquiring a new ship for the purposes of the business of the company until the acquisition of a new ship, for the purposes of the business of operating qualifying ships other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. Misutilisation or non-utilisation of Reserve [ Section 115VT(4) ] - Where any amount credited to the Tonnage Tax Reserve Account has been utilised for any purpose other than for acquiring a new ship for the purposes of the business of the company or is utilised for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. has not been utilised for the purpose for acquiring a new ship. has been utilised for the purpose of acquiring a new ship, but such ship is sold or otherwise transferred, other than in any scheme of demerger by the company to any person at any time before the expiry of three years from the end of the previous year in which it was acquired, an amount which bears the same proportion to the total relevant shipping income of the year in which such reserve was created, as the amount out of such reserve so utilised or not utilised bears to the total reserve created during that year under section 115VT(1) shall be taxable under the other provisions of this Act in a case referred to in clause ( a ), in the year in which the amount was so utilised; or in a case referred to in clause ( b ), in the year immediately following the period of eight years specified in section 115VT(3); or in a case referred to in clause ( c ), in the year in which the sale or transfer took place. However the income so taxable under the other provisions of this Act shall be reduced by the proportionate tonnage income charged to tax in the year of creation of such reserves. Consequence if the amount credited to reserve account is less than 20% [ Section 115VT(5) ] Notwithstanding anything contained in any other provision of this Chapter, where the amount credited to the Tonnage Tax Reserve Account in accordance with section 115VT(1) is less than the minimum amount required to be credited under section 115VT(1), an amount which bears the same proportion to the total relevant shipping income, as the shortfall in credit to the reserves bears to the minimum reserve required to be credited under section 115VT(1) shall not be taxable under the tonnage tax scheme and shall be taxable under the other provisions of this Act. Note: - If the reserve required to be created, is not created for any two consecutive previous years, the option of the company for tonnage tax scheme shall cease to have effect from the beginning of the previous year following the second consecutive previous year in which the failure to create the reserve had occurred. For the purposes of this section, new ship includes a qualifying ship which, before the date of acquisition by the qualifying company was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India.