Section 231 — Method of opting of tonnage tax scheme and validity. Successor to s.115VP, s.115VQ, s.115VR, s.115VS of the 1961 Act.
Section 231 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Sub-section (1) lets a qualifying company opt for the tonnage tax scheme by application to the Joint Commissioner having jurisdiction over it, in the prescribed form and manner. Sub-section (2) sets the window: within three months of the date of incorporation, or of the date on which it becomes a qualifying company for the first time. Sub-section (3) gives a Unit of an International Financial Services Centre that has availed of deduction under section 147 three months from the date on which that deduction ceases.
Sub-section (4) lets the Joint Commissioner call for information or documents to satisfy himself about eligibility, and requires him to pass a written order either approving or refusing to approve the option, a copy of which is sent to the applicant. Sub-section (5) bars a refusal order without a reasonable opportunity of being heard. Sub-section (6) requires every order under sub-section (4) to be passed before the expiry of three months from the end of the quarter in which the application was received. Sub-section (7) applies the Part from the tax year in which the option is exercised where approval is granted. Sub-section (8) keeps an approved option in force for ten years from the date it was exercised, taken into account from the tax year of exercise.
Sub-section (9) makes the option cease to have effect from the tax year in which the company ceases to be a qualifying company, a default is made in complying with section 232(1) to (20), the company is excluded from the scheme under section 234, or the company files a written declaration with the Assessing Officer that the Part may not apply to it — and the profits and gains from operating qualifying ships are then computed under the other provisions of the Act. Sub-section (10) allows renewal within one year from the end of the tax year in which the option ceases to have effect, and sub-section (11) applies sub-sections (1) to (9) to a renewal as they apply to an approval. Sub-section (12) bars a qualifying company that opts out on its own, defaults in complying with section 232(1) to (20), or is excluded by an order under section 234(4), from opting for the scheme for ten years from the date of opting out, default or order.
The tonnage tax scheme replaces ordinary computation of shipping profits with a tonnage-based measure, so entry and exit have to be controlled or a company would move in and out according to whichever basis was cheaper each year. The section therefore ties the option to a short application window, an approving officer, a fixed ten-year term, and a ten-year lock-out for anyone who leaves early, defaults or is expelled. The hearing requirement in sub-section (5) and the three-month outer limit in sub-section (6) are the discipline on the officer's side of that bargain.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Window for a qualifying company to apply | Three months | From the date of incorporation, or from the date on which it becomes a qualifying company for the first time | Sub-section (2) |
| Window for an International Financial Services Centre Unit to apply | Three months | From the date on which the deduction availed under section 147 ceases | Sub-section (3) |
| Time limit for the Joint Commissioner's order | Three months from the end of the quarter in which the application was received | Applies to every order under sub-section (4), whether approving or refusing | Sub-section (6) |
| Duration of an approved option | Ten years from the date on which the option has been exercised | Taken into account from the tax year in which the option is exercised | Sub-section (8) |
| Window for renewal | Within one year from the end of the tax year in which the option ceases to have effect | The renewal is then processed under sub-sections (1) to (9) as if it were an approval | Sub-sections (10) and (11) |
| Bar on opting again | Ten years | From the date of opting out, of the default in complying with section 232(1) to (20), or of the order under section 234(4) | Sub-section (12) |
The two clocks run from different events and are easy to confuse: the option lasts ten years from the date it was exercised under sub-section (8), while the ten-year bar in sub-section (12) runs from the date of opting out, default or exclusion order — so a company that leaves in year three faces a lock-out until ten years after that departure, not ten years from entry. Approval is not automatic; the Joint Commissioner must satisfy himself about eligibility and may refuse, but only after a hearing under sub-section (5) and only within three months from the end of the quarter of the application. Cessation under sub-section (9) is not confined to voluntary exit — a default in complying with section 232(1) to (20) or an exclusion under section 234 ends the option by itself, and from that tax year the shipping profits go back to ordinary computation. Renewal is possible under sub-section (10) but is a fresh run through the same approval machinery, since sub-section (11) applies sub-sections (1) to (9) to it. Note also that the section fixes only the entry, term and exit; what a qualifying company and a qualifying ship are, and what compliance is required, sit in the other sections of the Part.
A shipping company incorporated in May applies to the Joint Commissioner having jurisdiction over it in July, within the three months allowed by sub-section (2). The application is received in the quarter ending September, so the order under sub-section (4) must be passed by 31 December, that is within three months from the end of that quarter. Approval is granted, and the option runs for ten years from the date of exercise. If in the fourth year the company defaults in complying with a provision of section 232(1) to (20), the option ceases from that tax year under clause (9)(b), the profits from operating qualifying ships are computed under the ordinary provisions of the Act, and sub-section (12) bars the company from opting for the scheme again for ten years from the date of that default.
You meet this as an application in the prescribed form to the Joint Commissioner having jurisdiction over the company, and as his written order approving or refusing the option, a copy of which is sent to the applicant. It comes back as the declaration under clause (9)(d) filed with the Assessing Officer to leave the scheme, and in an order under section 234 excluding the company from it.
A qualifying company may make an application within three months, of the date of its incorporation, or of the date on which it becomes a qualifying company for the first time.
Every order under sub-section (4) shall be passed before the expiry of three months from the end of the quarter in which the application under sub-section (1) was received.
An option for tonnage tax scheme, after it has been approved under sub-section (4), shall remain in force for ten years from the date on which such option has been exercised
shall not be eligible to opt for tonnage tax scheme for ten years from the date of opting out or default or order.
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the notifications index.