Section 33AC, of Income Tax Act, 1961 states that
(1) In the case of an assessee, being a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount not exceeding fifty per cent of profits derived from the business of operation of ships (computed under the head “Profits and gains of business or profession” and before making any deduction under this section), as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account, to be utilised in the manner laid down in sub-section (2) :
Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the aggregate of the amounts of the paid-up share capital, the general reserves and amount credited to the share premium account of the assessee, no allowance under this sub-section shall be made in respect of such excess :
Provided further that for five assessment years commencing on or after the 1st day of April, 2001 and ending before the 1st day of April, 2006, the provisions of this sub-section shall have effect as if for the words “an amount not exceeding fifty per cent of profits”, the words “an amount not exceeding the profits” had been substituted:
Provided also that no deduction shall be allowed under this section for any assessment year commencing on or after the 1st day of April, 2005.
(2) The amount credited to the reserve account under sub-section (1) shall be utilised by the assessee before the expiry of a period of eight years next following the previous year in which the amount was credited—
(a) for acquiring a new ship for the purposes of the business of the assessee ; and
(b) until the acquisition of a new ship, for the purposes of the business of the assessee 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.
(3) Where any amount credited to the reserve account under sub-section (1),—
(a) has been utilised for any purpose other than that referred to in clause (a) or clause (b) of sub-section (2), the amount so utilised ; or
(b) has not been utilised for the purpose specified in clause (a) of sub-section (2), the amount not so utilised ; or
(c) has been utilised for the purpose of acquiring a new ship as specified in clause (a) of sub-section (2), but such ship is sold or otherwise transferred, other than in any scheme of demerger by the assessee to any person at any time before the expiry of three years from the end of the previous year in which it was acquired, the amount so utilised in acquiring the ship,
shall be deemed to be the profits,—
(i) in a case referred to in clause (a), in the year in which the amount was so utilised ; or
(ii) in a case referred to in clause (b), in the year immediately following the period of eight years specified in sub-section (2) ; or
(iii) in a case referred to in clause (c), in the year in which the sale or transfer took place,
and shall be charged to tax accordingly.
(4) Where the ship is sold or otherwise transferred (other than in any scheme of demerger) after the expiry of the period specified in clause (c) of sub-section (3) and the sale proceeds are not utilised for the purpose of acquiring a new ship within a period of one year from the end of the previous year in which such sale or transfer took place, so much of such sale proceeds which represent the amount credited to the reserve account and utilised for the purposes mentioned in clause (c) of sub-section (3) shall be deemed to be the profits of the assessment year immediately following the previous year in which the ship is sold or transferred.
section 33AC of Income Tax Act, 1961
Are you looking to understand about Reserves for shipping business?
This detailed article will tell you all about Reserves for shipping business.
Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.
Shipping is an integral component of global trade, contributing significantly to the world’s economy. The Indian shipping industry is a vital driver of the country’s economic growth. It’s essential to comprehend the concept of Reserves for Shipping Business under Section 33AC of the Income Tax Act.
Section 33AC permits individuals or entities engaged in shipbuilding, repairing, or operating businesses to claim a deduction of a specified amount from their taxable income. This provision was introduced in the Finance Act of 2007 and subsequently amended in the Finance Act of 2017.
The Reserves for Shipping Business are the funds that shipping companies set aside for repairing, maintaining, and replacing their ships. This reserve fund is critical to meeting financial obligations in unforeseen events, such as accidents, damage to ships, or emergencies.
Under Section 33AC, shipping companies can claim a deduction of 20% of the amount deposited in the reserve fund for a period of ten years. The deduction is available to companies involved in operating, repairing, or building ships.
To claim the deduction under Section 33AC, the shipping company must satisfy the following conditions:
- The company must be involved in the shipbuilding, repairing, or operating business.
- The reserve fund must be created to repair, maintain, or replace the ships.
- The reserve funds should not be used for any other purpose.
- The deduction is available for ten years.
- The company must file its income tax returns on time and maintain proper records of the reserve fund.
Creating a reserve fund for repairing, maintaining, and replacing ships has several benefits for shipping companies. It enables companies to meet their financial obligations in unforeseen events, enhances safety, increases productivity, and ensures compliance with international safety and environmental regulations.
In summary, creating a reserve fund for repairing, maintaining, and replacing ships is a vital aspect of the shipping industry. Section 33AC of the Income Tax Act incentivizes companies to invest in the safety and maintenance of their ships by allowing for a deduction of 20% of the amount deposited in the reserve fund for ten years. Companies engaged in the shipping business should understand the provisions of Section 33AC and leverage its benefits.