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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Business Restructuring

Two shipping companies, Sagar Lines Ltd and Tarang Shipping Ltd, both tonnage tax companies, amalgamate into Sagar Lines Ltd. Sagar Lines' option has 4 years unexpired and Tarang's option has 7 years unexpired. For how long will the tonnage tax provisions apply, as far as may be, to the amalgamated company under section 233?

The tonnage tax provisions apply for 7 years. Under section 233(3), when all amalgamating companies are tonnage tax companies, the amalgamated company gets the period of the option with the longest unexpired period, here Tarang's 7 years, rather than the shorter, summed or averaged period.

  1. A4 years, the shorter unexpired period
  2. B7 years, the longest unexpired periodCorrect
  3. C11 years, the sum of both periods
  4. D5.5 years, the average of both periods

Explanation

Section 233(3) says the provisions apply to the amalgamated company for such period as the option with the longest unexpired period continues in force. The longest here is 7 years. Choosing 4 years uses the shorter period, which is the wrong base, while the sum and the average are not provided for.

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