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

Vahan Shipping Ltd, a tonnage tax company, demerges its shipping business into Vahan Ocean Ltd, the resulting company. The transfer occurs before the expiry of the option, which has 5 years unexpired. Vahan Shipping continues to be a qualifying company and Vahan Ocean is also a qualifying company. Which statement is correct under section 233?

Both companies continue under the scheme for the unexpired 5 years. Section 233(5) extends the tonnage tax scheme to the qualifying resulting company, and section 233(6) keeps the demerged company's option in force if it still qualifies. No lapse or fresh option is needed.

  1. AThe scheme applies to Vahan Ocean for the unexpired 5 years, and Vahan Shipping's option also remains in force for the unexpired periodCorrect
  2. BThe scheme applies only to Vahan Ocean, and Vahan Shipping's option lapses on demerger
  3. CThe scheme applies only to Vahan Shipping, since the resulting company must make a fresh option after 3 months
  4. DThe scheme applies to neither company until a new option is exercised

Explanation

Section 233(5) applies the tonnage tax scheme to the resulting company for the unexpired period if it is a qualifying company. Section 233(6) keeps the demerged company's option in force for the unexpired period if it continues to be a qualifying company. So both continue for 5 years. The lapse and fresh-option alternatives are not in the text.

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