Section 229 — Depreciation and gains relating to tonnage tax assets. Successor to s.115VK, s.115VN of the 1961 Act.
Section 229 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Sub-sections (1) to (3) split the existing block of ships or inland vessels on entry into the tonnage tax scheme: the written down value of that block on the first day of the first tax year of the scheme is divided in the ratio of the book written down value of the qualifying ships to that of the non-qualifying ships, using a formula whose terms the section defines (D and E the resulting written down values, A the existing block, B and C the book written down values of qualifying and other assets on the last day of the preceding tax year), and the qualifying assets so identified become a separate block for this Part. Sub-section (4) handles movement between the two blocks — an asset leaving tonnage tax use has an appropriate portion of written down value taken out of the qualifying block and added to the other block, and an asset entering tonnage tax use moves the other way, each by a defined formula. Sub-section (5) apportions the year's depreciation on a moved asset in the ratio of days used for the tonnage tax business and days used otherwise, and sub-section (6) treats both new blocks as if their written down values had been brought forward from the preceding tax year. Sub-sections (8) to (10) deal with disposal: gains on transfer of an asset in the qualifying block are charged under sections 67 and 74 and computed under sections 67 to 81, with section 74 reading "written down value of the block of qualifying assets" for "written down value of the block of assets", and sub-section (7) defines "book written down value" as the written down value as per books of account.
Entering the tonnage tax scheme takes some ships out of ordinary computation while others remain in it, so the section splits one tax block into two along book values and keeps each side's depreciation and capital gains running on its own written down value. Sub-sections (4) and (5) exist because a ship can change use mid-year, and the day-count apportionment stops depreciation being claimed twice over.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Basis for apportioning depreciation on an asset that changes use | The ratio of the number of days used for the tonnage tax business to the number of days used for other purposes | Applies to assets moving between blocks under sub-section (4)(a) or (b), for depreciation computed under section 230(1)(d) | 229(5) |
On entry to the scheme you need two sets of numbers for the same fleet — the tax written down value of the existing block and the book written down values of the qualifying and non-qualifying ships at the end of the preceding year — because the split is driven by book values applied to the tax written down value. Once split, the qualifying assets are a separate block for all purposes of this Part, and depreciation runs as if that written down value had come forward from the previous year. Track the date any ship changes use: the written down value moves between blocks and the year's depreciation is cut on a day basis. On a sale out of the qualifying block, compute the gain under sections 67 to 81, reading section 74 against the qualifying block's written down value.
A shipping company enters the tonnage tax scheme holding a block of ships whose written down value on the first day of the first tonnage tax year is Rs. 100 crore. The book written down values on the last day of the preceding year are Rs. 60 crore for the qualifying ships and Rs. 40 crore for the rest, so sub-section (2) splits the block Rs. 60 crore to the qualifying block and Rs. 40 crore to the other — on the book figures, defined in sub-section (7) as the written down value as per books of account, not on tax written down values. If one qualifying vessel is then put to non-tonnage use for 200 days of the year, sub-section (4)(a) moves an appropriate portion of written down value out of the qualifying block into the other, and sub-section (5) splits that year's depreciation between the 165 days of tonnage tax use and the 200 days of other use — so neither block gets a full year on that ship.
In the depreciation schedule and capital gains computation of a shipping company inside the tonnage tax scheme, and above all in the assessment for the first tonnage tax year, where the existing block is split for the first time. Because the split runs on book written down values, the working is drawn from the company's books of account rather than from its tax depreciation record alone.
The block of qualifying assets as determined under sub-section (2) shall constitute a separate block of assets for the purposes of this Part.
See the full 1961 to 2025 concordance.