A STUDY ON TONNAGE TAX

IN
DREDGING CORPORATION OF INDIA LIMITED,
VISAKHAPATNAM

SUBMITTED IN PARTIAL FULLFILLMENT OF REQUIREMENTS OF MASTER OF

BUSINESS ADMINISTRATION (INTERNATIONAL BUSINESS)

Submitted by
Hari Priya Devarakonda
Roll No: 1226109114

Under the guidance of

Industry Guide Functional Guide

Dr..D.Ravinath Ms. K. Lubza Nihar
Associate Professor Associate Professor

GITAM SCHOOL OF INTERNATIONAL BUSINESS

Visakhapatnam-45

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 STUDENT DECLARATION

I hereby declare that this project titled “A STUDY ON TONNAGE TAX IN DREDGING
CORPORATION OF INDIA LIMITED “ is a bonafide work done by me and has not
been submitted to any other organization or used for any other purpose. The facts
presented and the views expressed in the report are of my own and do not reflect the
views of any organization or individual. This project is not based on any previously
submitted project for the award of any degree or diploma offered by any University. It is
a result of my own efforts and hard work. This report is based on my personal opinion
hence cannot be referred to legal purpose.

Regd No: 1226109114 Hari Priya Devarakonda

Date :
Place : Visakhapatnam

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 ACKNOWLEDGEMENT

No work can be completed successfully without the inspiration, encouragement, co-

operation, guidance and experience of well-wishers. The same was with the project also. I
considered myself fortunate enough to get this much required assistance from certain
persons whom I am thankful to, from the deepest core of my heart.

I take this opportunity to extend my sincere gratitude to my project guide Ms.K.Lubza

Nihar who has guided me comprehensively throughout my project and under whom I
became richer in knowledge and experience by completing the requirements of the
internship.
I would also like to thank Dr. D. Ravinath for his valuable suggestions in my project
which helped me to complete this project.

I also owe the successful completion of the project to my guide D. Subba Rao whose
inputs at different stages were very helpful. At sometimes he was not present physically
during the project but his ideas through phones and suggestions when I met him regularly,
supports me a lot in completing my project

Last but not least, I would like to thank my parents and friends for their help and support
that has largely contributed top the successful completion of the project

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 CERTIFICATE

This is to certify that Hari Priya Devarakonda, a student of MBA (IB) 2009 – 2011,
GITAM Institute of International Business, has submitted a project entitled “The Study
on Tonnage Tax in Dredging Corporation of India Limited”, to me as a part of course
curriculam.. Hence forth I request you to issue the project completion certificate which
shall fulfill the completion of the project.

Thanks & Regards

K.Lubza Nihar

Asst.Prof

GIIB

GITAM University

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 CONTENTS
PARTICULARS PAGE NO

Executive Summary 6

CHAPTER – I 8-11

Introduction of the Study

Objectives and need of the Study

Methodology

Review of literature

CHAPTER – II 12-33

Company Profile

CHAPTER – III 34-45

Theoritical framework of

Tonnage Tax

CHAPTER-IV 46-64

Emperical part of Tonnage Tax

Statistical Techniques

Suggestions and References

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 EXECUTIVE SUMMARY

Dredging Corporation of India Limited is a Government of India undertaking, under the

administrative control of Department of Shipping, Ministry of Shipping, Road Transport
and Highways incorporated in 1976 with the object of providing integrated company and
its turnover has raised to Rs.832 crores. Informatively, Dredging Corporation of India is
the 6th largest dredging company in the world..It has achieved the major business firm
objective of wealth maximization. It has been earning profits since inception and
distributing very good benefits to the government as well as its other shareholders by way
of higher dividends. It is providing quality dredging services to major/minor ports, Indian
navy, Shipyards and other coastal organizations. It has also been fulfilling its social
objective.
Under the Tonnage Tax scheme, the liability of a shipping company towards taxation is
determined on the basis of tonnage of this vessel or a fleet of vessels, operated or
chartered by it rather than the profit stream generated by their commercial operations,
which varies from year to year. The Tonnage Tax was introduced in order to bring
favorable fiscal regime helping minimizing the cost of capital which would contribute to
increase the tonnage capacity of India to grow rapidly. Reduction in tax liability would
enable DCI to conserve more finances internally, which can be effectively deployed for
expanding its fleet, which would contribute to the growth of dredging significantly in the
country. As DCI is competing with foreign dredging firms in India and is making forays
into foreign contracts also, tonnage tax would be one way of affording it a level playing
field with foreign competitors.. Thus, DCI and the Government would be benefited by
reduction of burden of taxation in the hands of DCI.

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 CHAPTER-1

INTRODUCTION OF STUDY

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Tonnage Tax is an alternative method of calculating corporation tax profits by reference
to the net tonnage of the ship operated. It is the tax paid by a shipping company based on
the total tonnage of its ships. The tonnage tax involves computation of notional profit on
the basis of number and size of ships operated and not taxing this profit at the normal
corporate tax rate. Under the Tonnage Tax scheme, the liability of a shipping company
towards taxation is determined on the basis of tonnage of this vessel or a fleet of vessels,
operated or chartered by it rather than the profit stream generated by their commercial
operations, which varies from year to year. The tonnage tax involves computation of
notional profit on the basis of number and size of ships operated and not taxing this profit
at the normal corporate tax rate.

Need and Significance of the study

The Tonnage Tax was introduced in order to bring favorable fiscal regime helping
minimizing the cost of capital which would contribute to increase the tonnage capacity of
India to grow rapidly.

Objectives of the study

To promote the investment opportunities

Helps in faster growth of Indian tonnage
Reduce the tax burden

Methodology of the study

Methodology is a systematic procedure of collecting information in order to analyze and

verify a phenomenon. The collection of information is done through two principle
sources.The methodology used to carry out this project on Tonnage Tax of DCI is
through collection of ( i) Primary data (ii) Secondary data

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Primary Data: It is the information collected directly without any references in this
study it is to gathered through interviews with concerned officers and staff either
individually or collectively some other information were verified and supplemented
through personal observation. The data collection includes conducting personal
interviews with the concerned officers of finance department of DCI.

Secondary Data: The secondary data was collected from already published sources
such as annual reports, internal records. The data collection includes collection of
required data from annual reports of DCI, reference from textbooks .

Limitations of Study

The complexity and confidentially of various operations was one of the limitations

DCI is a service-oriented organization so various interpretations may not hold good.

REVIEW OF LITERATURE

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1. Tonnage tax adds weight to Indian fleet

(M. P. Pinto, Business Standard- July 18, 2005)

This article reviews the importance of tonnage tax in increasing shipping tonnage.
India's shipping tonnage, which for 25 years seemed doomed to remain under 7 million
tonnes, has crossed the magical figure of 8 million tonnes in a just a year. An important
reason for the upswing is the introduction of tonnage tax as a substitute for the regular
corporate tax. The real reason for the upswing in India's shipping fortunes, then, must be
linked to the initiative taken by the Finance Minister in the last Budget to introduce
tonnage tax as a substitute for the regular corporate tax to which Indian shipping
companies had been subject. The growth of the domestic fleet will definitely lower India's
burgeoning freight bill and, given the massive growth in international trade, this is no
mean advantage. More important, it will lead to greater employment, bring in huge
increases in invisibles and give the country a chance to establish itself as a regional centre
for maritime affairs

2. Why tonnage tax makes sense

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 (Michael Pinto, Business Standard –Aug 4, 2010)

This article reviews that by proposing the introduction of tonnage tax in place of the
existing taxation regime, the finance minister not only met a long-standing demand of the
shipping industry, but also created an atmosphere that enables Indian lines to compete
successfully against their rivals anywhere in the world. Tonnage tax is calculated not on
the profit or loss of a company in a given year, but by applying a notional annual income
on its net registered tonnage. This means that the tax burden is known in advance and is
neutral to the performance of the company. The effect is to ring-fence the company’s tax
liabilities, making financial planning and long-term strategic operations easier. The case
is best seen in the electrifying effects that tonnage tax has had on employment and
development in the UK. In each of the first three years following the introduction of
tonnage tax, the British fleet strength went up by more than 1 million tonnes, rocketing
the country from a lowly 21st position to the 9th largest in the world. The most effective
way of encouraging the growth of tonnage in the flag, especially by attracting new
players, is through meaningful fiscal policies like tonnage tax.

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 CHAPTER-2

DREDGER

Dredgers are ships that are equipped to collect sand and aggregate from the sea floor and
return with their cargo to sell it. They are often used to enlarge or deepen channels in

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harbours, to prevent them silting up. Government of India, Ministry of Law- confirmed
that dredgers are ships. Indian Merchant Shipping ( Amendment) Act,2003- considers
dredgers as ships- certificate issued under Merchant Shipping Act,1958 and by
Mercantile Marine Department to dredgers. Similar to cargo ships, all dredgers operating
in India are required to register themselves under Merchant Shipping Act, 1958 and
Coastal Vessels Act, 1938. Dredging industry in India governed by Directorate General
shipping in India. Rules and regulations regulated by Directorate General Shipping are as
much applicable to dredgers as to cargo ships.

Dredging is a key maritime activity

As per estimates around 95% of India’s international trade by volume and 68% by value,
moves by sea, however, stagnancy in the growth of Indian shipping tonnage over the
recent past years is concern. Report of Dr. Rakesh Mohan Committee recognizes that
dredging/ port development activities are collaterally linked to the shipping industry.
Dredging industry actually facilitates trade through ships by making available/
maintaining the draught of sufficient depth for enabling the huge cargo ships. Ex. Large
Container vessels/ VLCC’s to call at the port. This will facilitate growth in Indian
tonnage on account of economies of scale achieved by way of access to Indian ports by
large cargo ships. Unless state of art dredgers are imported, it may not be feasible to
develop the shipping industry in India due to lack of sufficient infrastructure in ports to
enable the large ships to be attracted. The direct benefit of building strong dredging
industry would directly accrue to the Indian shipping industry by way of good
infrastructure at Indian ports and capacity to offer competitive freight due to economies
of scale because of large ships. Thus, the key aspect, behind recommending the
introduction of tonnage tax for shipping companies by Dr. Rakesh Mohan Committee, of
promoting the Indian shipping industry by growing the Indian tonnage, may not get
accomplished without developing the Indian dredging industry. What the Indian dredging
industry needs is investment- enhancing policies and these can only come about if the
fiscal regime are such as to promote new investments in latest technology/ equipment.

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Need to generate strong Indian dredging industry

With increasing international trade, following dredging requirements are expected to

materialize- deeper draught requirements of Indian Ports, expansion requirements of
Indian ports due to increase in port traffic, tourism development and increasing need
for beach nourishment, land reclamation for low lying areas. Dredging is also a
capital intensive industry with capital cost forming a major cost element. Substantial
capital investment is required. Presently there are no significant dredge building
facility in India and therefore, most of the dredgers owned by Indian dredging
companies were acquired from abroad. A typical medium size dredger costs around
Rs.270 crores. Recent past Indian companies are required to pay custom duty for
importing dredgers into India, whereas during early 90’s no custom duty were levied.
The same also increases the capital required for acquisition of dredgers. “Dredging
activity” stands on an entirely different footing as compared to the other exclusions on
account of the following:Dredging is an integral part of maritime activity and the
transportation of goods across oceans. Dredging is necessary to create the drafts
needed to dock today’s ocean going vessels which are becoming bigger (requiring
deeper drafts) to take advantage of economies of scale, thereby reducing freight
costs. The strong dredging industry would be a key to achieve the India’s target of
increasing its share of world trade.

DREDGING INDUSTRY IN INDIA

Indi is the world’s largest peninsula with a sprawling coastline of across 7500 kms
stretching across 3 major international water bodies Bay of Bengal, Indian Ocean and

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Arabian sea. The innumerable major and minor ports along this coastline make India one
of the most prominent maritime traders of the world. Ensuring continuous availability of
the desired depths in the shipping channels of these ports for smooth trading as well as
naval and fishing activities is a formidable job. This responsibility was taken up in 1976
by the Dredging Corporation of India Ltd.
There are 12 major ports under the administrative control of the Ministry of Shipping ,
road transport and highways, approximately 180 non-major ports under the administrative
control of the Government of India, State Governments and private ports. Approximately
75% of India’s port traffic by volume is handled by the major ports and the balance
handled by non major ports.
Expansion of the port capacity either through construction of new ports of expansion and
development of existing ports would create opportunities for both capital dredging and
increased maintenance dredging.
Apart from capital and maintenance dredging requirement of major ports which together
constitute approximately 93% of the Indian dredging market requirements also exist for
beach nourishment, shore protection and land reclamation at a much lower scale. An
inland water way dredging is largely confined to river bank ports. But Indian dredging
market is primarily maintenance dredging driven.

INDUSTRY SCENARIO:
The size of the Indian dredging industry is estimated to be around Rs 6.0 billion of which
Dredging Corporation of India (DCI) is the major player having a market share of nearly
50 per cent.. Dredging companies also spread their risk by involving themselves in other

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underwater construction works, required in offshore oil exploration and laying of oil and
gas pipelines, inland waterways, building of roads and bridges on water bodies and sea
reclamation projects. From the past data it can be safely assumed that the industry would
be bullish in the future. There also exists the massive 600 crore project for deepening of
the main approach channel which has been proposed by Jawaharlal Nehru Port Trust..
Constant effort by the Government for port sector development has boosted the dredging
industry thereby leading to increased demand for capital and maintenance dredging.
Liberalization of the Indian economy has opened up the door to foreign majors leading to
increased competition. On the basis of size of operations, the domestic dredging industry
is broadly segmented into two sections:

• High volume segment- consisting of large players like DCI and other foreign
majors. The segment caters to the requirements of existing major ports and
upcoming ports and carries out dredging jobs of more than 0.5 million cubic
meters. Nearly all the global dredging majors like HAM, Dredging International,
Boskalis International, Van Oord ACZ have their active presence in this segment.
• Mid volume segment- consisting of medium sized Indian dredging companies like
Dharti Dredging and Construction Company, ABC, Maldar Dredgers catering to
the dredging requirement of state maritime boards, Inland Waterways Authority,
private ports and captive jetty operators with dredging volume ranging from 0.05
million to 0.5 million cubic metres.

It has been observed that for both high and mid volume segments, capital dredging jobs
are increasingly being given to private dredging companies, while port authorities and
other government agencies are employing DCI mostly for maintenance dredging. Foreign
majors, equipped with better infrastructure, manpower and having low cost of operations
are increasingly taking the lead role in new dredging activities by reducing the share of
DCI. With more emphasis being given on Inland Waterways, Indian dredging companies
active in the mid volume segment can look forward to better opportunities from this
sector, banking on their experience. Development activities taken up by existing as well
as upcoming ports to enhance channel depth for accommodating large size vessels are
likely to bring considerable opportunities and fierce competition in the Indian dredging

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sector. India has just 60 professionals to navigate dredgers, specialized ships used for
deepening ports, even as harbours need their services to receive bigger vessels so that
shipowners, exporters and importers can chase economies of scale and achieve lower
costs. According to government estimates, the industry needs at least 1,000 specialized
staff to operate dredgers along the country’s coast in three-four years. The country needs
at least 100 dredgers in five years to meet the growing demand.

OPERATIONS:

DCI is the largest dredging company in India and has generally operated at close to 100%
capacity utilization. The capacity utilization is the ratio of the amount actually dredged by
DCI in a year and its derived annual dredging capacity. Annual dredging capacity is
derived from a number of parameters including installed hopper volume, estimated
number of days dredging location soil characteristics, number of loads and dumping
distance. In 2007-2008, DCI operated at a capacity utilization of approximately 84.82%
(based on actual days dredged and other relevant factors). The lower capacity utilization
is mainly on account of decrease in the number of dredging days than targeted in respect
of some dredgers due to extended dry-dock periods, emergency dry docking and break
downs.

OPPORTUNITIES AND THREATS

The company perceives the following opportunities

 Targeted GDP growth rate of average 9% per annum during 11th plan which is
expected to result among others in Port traffic and port capacity during 11th plan.
 Upcoming capital dredging projects at various ports in India
 The Sethusamudram Ship channel project
 Increased maintenance dredging requirements consequent to new capital dredging
works
 Growing international trade volumes- opportunities abroad

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 The company perceives the following threats
 Increasing foreign competition
 Increasing competition from Indian dredging companies
 Frequent and expense repairs to dredgers due to ageing
 Inadequate dredging capacity
 Non-availability of experienced and trained technical persons/floating
personnel which is mainly because of the not so attractive pay packages in the
public sector

INDIAN DREDGING MARKET OUTLOOK

During the 11th plan while the consistent maintenance dredging requirements at the major
ports are expected to continue, increasing private sector participation in port development
and related capital dredging activity is expected. At the same time, the dynamics in the
Indian market are rapidly changing. The key changes taking place include changes in
customer profile for dredging work from a daily rate basis to quantitative or performance
based methods, the expansion of Indian port capacity and increasing participation of
international companies in the Indian dredging market. Other developments include:
 Deeper draught requirements of Indian ports
 Tourism development and increasing need for beach nourishment
 Land reclamation for low lying areas
 Sethusamudram ship channel project
DCI’s customers include major ports under the administrative control of the Ministry of
Shipping, Road Transport and Highways, non major ports under the administrative
control of the Government of India and State Governments, private ports, the Indian Navy
and shipyards. The Indian dredging market is primarily maintenance dredging oriented.

OUTLINE OF DREDGING CORPORATION OF INDIA LIMITED

Dredging Corporation of India Ltd, a Mini-Ratna Public Sector Enterprise is a successful
Domestic & Global Player in the field of dredging. 7th largest dredging company in the

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world with 80 mn cu. m dredging capacity. Dredging Corporation of India Ltd was
incorporated on March 29, 1976 with the primary objective of catering to the dredging
requirements of Indian ports. The company incorporated with a paid-up capital of Rs.28
crores, has been making profits since its inception. The Government of India disinvested
21.44% of its equity and currently holding 78.56% equitt. The company commenced their
full fledged commercial operation from April 1, 1977.The company is a pioneer
organization in the field of dredging and maritime development. Dredging Corporation of
India Limited provides a range of dredging and allied services to the major and minor
ports, Indian navy, fishing harbors, and other maritime organizations in India. The
horizons of dredging activities are fast expanding worldwide, and its services are
increasing in demand and put to use in the areas of Environmental Protection, Tourism,
Flood Control, Irrigation, Power Generation, Port development, Mining, Reclamation,
Laying of Off-shore Pipelines and so on. Its services include capital dredging for creation
of new harbors, deepening of existing harbors, or maintenance dredging for the upkeep of
the required depths at various ports along the 5,700 kilometers coastline of India. The
company offers various services, including pilotage, tugging, berthing, unberthing, and
mooring of ocean-going cargo ships; supervision of cargohandling operations;
maintenance and upkeep of port facilities; and establishment of operation an maintenance
services.. They do dredging mainly for Indian seaports, though occasionally they dredge
at foreign seaports in countries such as Taiwan and Dubai. DCI has a fleet of 7 trailer
suction hopper dredgers, 2 cutter suction dredgers and 3 inland dredgers with a total
dredging capacity of 50.55 mn cubic meters . In 2005-06, DCI operated at a capacity
utilization of approximately 91.10% . The lower capacity utilization is mainly on account
of decrease in the number of dredging days than targeted in respect of some dredgers due
to extended dry-dock periods, emergency dry-docking and break downs.Asof March 31,
2009, the Company’s project offices were situated at Haldia, Kolkata, Paradeep,
Visakhapatnam, Chennai, Nagapattinam, Rameswaram, Cochin, Mangalore and Mumbai

MISSION

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To provide Integrated dredging and related marine services for promoting the country's
national and international maritime trade, beach nourishment, reclamation, inland
dredging, environmental protection and ultimately to become a global player, in the field
of dredging

OBJECTIVES OF DCI

To meet maintenance dredging of major and minor ports, shipyards, fishing harbor,
navy and industrial establishments
To promote technical co-opoeration among developing countries
To achieve a major share of capital dredging activity
To enter into the international dredging market, particularly in neighboring
countries
To generate internal resources for financing capital requirements of the company to
the maximum extent
To upgrade and modernize the dredging fleet for achieving higher productivity and
to constantly enhance the quality of the service
To achieve customer satisfaction by providing efficient and timely needed service

CLASSIFICATION OF DREDGING
Dredging can be classified as follows:
i. on the basis of nature
ii. on the basis of area of operation
i. ON THE BASIS OF NATURE
On the basis of nature dredging can be classified as
a. Capital Dredging
b. Maintenance Dredging

a. CAPITAL DREDGING
Capital dredging is a process of creation or construction of new harbours by cutting the
ground and soil to the extent of desired depth. It is generally carried out only once at a
particular place. It takes 9 months to 3 years for capital dredging.

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b. MAINTENANCE DREDGING
Maintenance Dredging is the process of maintaining the required levels of depth of
harbors, ports etc by removing the unwanted material under the water. Maintenance
dredging can overcome the lateral drift in the coastal line which occurs so frequently. It
takes about 2 to 3 months for the process of maintenance dredging.

ii. ON THE BASIS OF AREA OF OPERATION

On the basis of area of operation can be classified as
a. Sea Dredging
b. Inland Dredging
a. SEA DREDGING
The dredging process that is undertaken in the sea shores, ports is referred as sea
dredging
b. INLAND DREDGING
The dredging process undertaken in the rivers, lakes etc..is called Inland dredging. The
equipment and the technology used for inland dredging differ from that used for dredging
in the sea.

ADVANTAGES OF DREDGING
Inland Dredging
Dredging and deepening of national water ways for smooth navigation of barges and
other inland crafts to promote commerce, tourism and export.
Flood control
Desiltation and deepening of rivers and canals to protect banks, crops, property and
people from floods which would also result in saving crores of rupees on rehabilitation.

Power generation
Power generation capacity of hydro electric power of all plants can be increased
when the storage capacity of its reservoir is increased. This is possible through dredging
and it helps a lot in decreasing power storage.

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Irrigation and drinking water
Distilling and deepening of irrigation canals, reservoirs to improve and maintain
irrigation and drinking water supply round the year
Safe navigation
For ships to move safely, adequate water should be maintained through regular
dredging.
Tourism
Removal of weds and slit from inland water lakes will promote tourism, water sports
and fishing.

DCI’S FLEET
DCI’s fleet comprises of two cutter suction dredgers, threee inland dredgers and ten
trailer suction dredgers.
TRAILER SUCTION DREDGERS
This kind of dredgers loads the unwanted material that was removed through the
dredging process and dumps the waste in the sea away from the shore.
CUTTER SUCTION DREDGERS
This kind of dredgers help in cutting the under water material and then it sucks the
material.

CAPACITY UTILISATION
DCI is the largest dredging company in India and has generally operated at close to 100%
capacity utilization. The capacity utilization is the ratio of the amount actually dredged by
DCI in a year and its derived annual dredging capacity. Annual dredging capacity is
derived from a number of days of dredging, location, soil characteristics, number of
loads and dumping distance.

MAJOR ACTIVITIES OF DCI

Capital Dredging

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Capital dredging carried out to create a new harbour, berth or waterway, or to deepen
existing facilities in order to allow larger ships access. Because capital works usually
involve hard material or high-volume works, the work is usually done using a cutter
suction dredge or large trailing suction hopper dredge, but for rock works drilling and
blasting along with mechanical excavation may be used.

Maintenance Dredging

Maintenance dredging to deepen or maintain navigable waterways or channels which are

threatened to become silted with the passage of time, due to sedimented sand and mud,
possibly making them too shallow for navigation. This is often carried out with a trailing
suction hopper dredge. Most dredging is for this purpose, and it may also be done to
maintain the holding capacity of reservoirs or lakes.

Beach nourishment

Mining sand offshore and placing on a beach to replace sand eroded by storms or wave
action. This is done to enhance the recreational and protective function of the beaches,
which can be eroded by human activity or by storms. This is typically performed by a
cutter-suction dredge or trailing suction hopper dredge.

Land reclamation

Dredging to mine sand, clay or rock from the seabed and using it to construct new land
elsewhere. This is typically performed by a cutter-suction dredge or trailing suction
hopper dredge. The material may also be used for flood or erosion control

BUSINESS PROCESS IN DREDGING INDUSTRY

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Dredging activity involves removal of silt or sand from ocean bed or riverbed with the
help of dredgers at or near the port in order to increase the depth of water or to restore the
existing depth in order to enable the large ships ex. VLCC’s to call at ports.

Depending upon the terms of the contract with the client, the dredging company
transports the dredged material for dumping at approved locations, which may be at deep
sea.Dredging is critical for development of the Indian shipping industry, and for
increasing India’s share in the world trade deep draughts at Indian ports are needed to
handle the large ships that are becoming indispensable for freight economy in an
increasingly competitive world.

BUSINESS CLIENTS OF DCI

• Major Ports
• Minor Ports
• Naval Establishments
• Fishing Harbours
• State Governments
• Shipyards
• International Agencies

CUSTOMERS OF DCI
DCI provides dredging services for major and minor ports, shipyards, navy and fishing
harbour. It also offers services to private companies such as Reliance petro
chemicals,Essar , Gujarat steels and Hazia.
The customers of DCI are as follows:
Minor Ports : Ennore port, Ravalapadu port, Kakinada port
Major Ports : Visakhapatnam port, Kolkata port, Kandla port, JNPT port, Paradip
port, Chennai port, Goa port
Navy : Most of naval projects related to a dredging are undertaken by DCI
various projects are at Mumbai, Visakhapatnam, Kolkata, Cochin etc.
Shipyards : At Cochin, Visakhapatnam, Kolkata and Mumbai

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Fishing Harbours : Other marine organizations, state government and industrial
establishments

COMPETITORS OF DCI

. The level of competition to a company plays a significant role in determining the

efficiency and success of a company’s operation. Various measures taken
under liberalisation, globalisation and privatisation by the government have
enabled various private companies to enter into the field of dredging activities.

A. Multi-national Dutch and Belgium dredging companies:

- Ballast Ham dredging
- Royal Boskalis
- Blank Voort
- Van Oord ACZ
- Dredging International
- Jan De Nul
B. Indian Dredging Companies:
- Jaisu Shipping Company
- Dharti Dredging & Construction Co. Limited

TOP MANAGEMENT OF DCI

Articles of Association states that the corporation should have atleast 4 directors and not
more than 12 directors including Chairman and Managing Director. Chairman and
Managing Director may function as two different posts or they can be combined into one
position. The Managing Director acts as the Chief Executive of the organization if
Managing Director and Chairman function separately. At present the posts of Chairman
and Managing Director have been combined to function as Chairman cum Managing
Director. Appointment and reappointment of Managing Director and 3 other directors are
under the powers of the President of India. Out of these 3 directors, one should represent

25
finance. The removal of the directors of the Corporation also is under the discretion of the
President.

ORGANISATIONAL STRUCTURE OF DCI

The Board of Directors, Chairman cum Managing Director being the Chief Executive
Officer of the corporation, manages the organization. Director(Finance),
Director(Technical and Operations) and Chief Vigilance Officer assist the Chairman cum
Managing Director. There are 6 departments in the organization where each department
looks after separate activities.
1.Personnel and Administrative Department:
Main activities of the department comprises of manpower planning,
recruitment of shore and floating staff, training and development, maintenance of
industrial relations and general administration and the other activities of the department.
2. Technical Department:
General Manager(Technical) head of the Technical Department. This
department looks after the activities relating to the procurement of material, maintenance
and repairs of the dredgers, providing materials and stores to the vessel.
3. Secretarial and Legal Service Department:
This department is responsible for the activities relating to legal matters of
the corporation, matters regarding insurance, public relations including press and
publicity. The company secretary is in charge of this department.
4. Operations Department:
General Manager (Operations) is the head of the Department. The main activities
of this department include arrangement of contracts with customers, planning and
coordination of coastal dredging projects relating to ports, fishing harbours, shipyards and
inland dredging. In short, this department is responsible for negotiation and
implementation of dredging contracts.
5. Management Information System:
Information required for all the departments and for managerial decisions is
provided by this department. Manager heads the department.

26
6. Finance and Accounts Department:
General Manager (Finance) is the head of the department. The Director (Finance) is
assisted by General Manager( Finance) and General Manager (H.R) . General
Manager(Finance) avails specialized services of other managers who look after separate
areas in Finance and Accounts. The main activities that are carried out by this department
are compilation of financial accounts, budgeting, maintaining project accounts,
maintaining various accounts like floating staff accounts, capital expenditure accounts
etc. In order to carry out all these departments of the Finance Department is further
divided into several sections.

VARIOUS SECTIONS OF FINANCE DEPARTMENT:

1. BUDGET SECTION:
In DCI, budgets are prepared 6 months before the actual expenditure is to be
incurred. Budget is prepared dredger wise.
Steps in the preparation of budget
 Preparation of month wise action plan for deployment of each dredger
 Estimation of other non operational income such as interest on fixed deposits,
sale, condemned stores etc.
 Estimation of operational expenditure like repairs and maintenance (dry dock),
stores and spares, fuels and lubricants etc.
 Estimation of administrative expenses, interest, depreciation and provisions to be
made.
After preparation of budgets, the budget proposals are submitted to the Board of Directors
along with a board note for the final approval. The approval budgets serve as a basis for
giving commitments in the Memorandum of Understanding.
2. REPAIR SECTION:
This section looks after the repairs to be done on vessels and various equipments
maintained by DCI.

27
Broad functions of Repair Sections are:
 To inspect various operational equipments such as dredgers etc., periodically as
well as on need basis
 To settle parties for carrying out the repairs by entrusting the repairs either to
repair workshops or selecting an agency
 To maintain all accounting and statistics records and so on

3. SHORE ESTABLISHMENT SECTION:

This section is responsible for
 Arrangement of salaries to shore personnel
 Settlement of accounts like canteen expenses, employee benefits, power,
insurance, water expenses etc.
 Timely preparation of accounting schedule for final accounts
 Making necessary adjustments for rectification whenever necessary
 Forwarding periodic returns on due dates to statutory authorities
4. PROVIDENT FUND SECTION
The organization has established a Provident Fund named “ DCI Ltd. Employees
Contributory Provident Fund” to manage the Provident Fund accounts of its employees
by registering an irrevocable trust deed with the registrar of assurances. Every month this
fund will receive both employees and employers contribution . The amount to be
contributed to CPF is 12% of (Basic +DA). The employees can take on the Provident
Fund loans, the quantum of which is based on the provident balance at the credit to the
employees provident fund account. The loans are refundable and non refundable.

5. CAPITAL PURCHASE SECTION:

This section is responsible for maintenance of proper accounts of capital
expenditure incurred. This is done by maintaining a capital purchase register. Budget
section prepares revised capital budgets on the basis of information in the capital
purchase register.
6. REVENUE SECTION:

28
 This section looks after finalization of contracts with clients respect to rates and
other terms and conditions.
 Raising bills on customers
 Collection of outstanding dues from the clients
 Providing information to budget section
7. MATERIAL SECTION:
Material section is concerned with
 Placing of purchase orders
 Material procurement
 Verifying stock of stores and spares
 Maintenance of spares and stores
 Delivery of stores and spares to vessels
8. OPERATIONAL ACCOUNTS SECTION:
This section looks after operational expenses like
 Pipeline maintenance expenses
 Payment of insurance amounts
 Payment of repairs
 Supply of fuel and lubricants
 Payment of salaries to operational staff
 Transport of men and material to vessel

9. CASH SECTION
Cash section is mainly concerned with maintenance of surplus in banks
The main functions of cash section are
 Cash book maintenance
 Preparation of bank reconciliation statement
 Receipt of funds from all project offices and customers etc.
 Releasing of payments to various project offices, repair firms, payment to
Suppliers etc
 Preparation of estimated receipts and payments

29
  Preparation of cash flow statements
10. FLOATING ESTABLISHMENT SECTION:
The main activities of this section include
 Arrangement of salaries to floating staff
 To ensure that the masters are properly advised regarding the income tax to be
 Deducted at source from the monthly bill
 To give all journal vouchers and schedules necessary to be central accounts
section in order to enable them to complete the monthly/ quarterly accounts
and also finalize the annual accounts
 To regularly review the claims register to see that no claim is outstanding for
reasonable time
11. CORPORATE ACCOUNTS SECTION
Corporate section is mainly responsible for preparing profit and loss account and
balance sheet of the company from various accounts maintained by different sections of
finance and other departments.
The main activities of this section include
 Proper reconciliation and checking of balances of various accounts prepared by
different sections and departments.
 Preparation of Trial balance
 Preparation of Profit and Loss Account and Balance Sheet along with detailed
schedules and accounting notes

12. TAX SECTION:

Tax section is mainly concerned with calculation of taxes to be paid by the company
and the employees.
Main activities of tax section are
 Calculation of advance tax and wealth tax to be paid by the company
 Calculation of tax deducted at source in respect of salaries of employees
 Identifying the exemptions and deductions available to the company in respect of
its income

30
13. INTERNAL AUDIT SECTION:
Although company’s accounts are audited by a Statutory Auditor who is a Chartered
Accountant, the company has a separate internal audit section which conducts internal
audit monthly. Even though internal audit section is one of the sections of Finance
Department, the internal auditor directly reports to the Director ( Finance).
Functions of internal audit section are
 Review of internal control systems and procedures
 Examine systems regarding the custodianship and safeguarding assets of the
company
 The compliance by the various departments with the policies, plans and
procedures of the company as well as with the relevant regulations and laws
 Review of operations
Hence, these are the various activities performed by different departments of DCI

The Board of Directors of the Dredging Corporation of India:

• Capt. S.S.Tripathi, Chairman and Managing Director

• P.V. Ramana Murthy, Director (Finance)
• K. Aswini Sreekanth (Company Secretary)

The major clients of the Dredging Corporation of India:

• Kolkata Port Trust

• Mormugao Port Trust, Goa
• Mumbai Port Trust
• Cochin Port
• Visakhapatnam Port Trust
• Jawaharlal Nehru Port Trust, Mumbai
• Kandla Port Trust
• Indian Navy, Kochi

31
 • Indian Navy, Mumbai
• New Mangalore Port Trust
• Paradip Port Trust
• Ennore Port Trust

List of dredging companies working in India

1. Dredging Corporation of India Limited, Visakhapatnam.

2. Jaisu Shipping Company Private Limited, Kandla.

3. Mercator Lines Limited, Mumbai.

4. Dharti Dredging and Construction Limited, Hyderabad

5. Meka Dredging Corporation, Mumbai.

6. Sical Logistics Limited, Mumbai

7. Infra Dredge Services Private Limited, Mumbai

8. Van Oord India Private Limited, Mumbai

9. Boscalis Dredging India Private Limited, Mumbai.

10. Jan De Nul Dredging India Private Limited, New Delhi

11. Dredging International India Private Limited, New Delhi

32
12. International Seaport Dredging Limited, Chennai

13. Inaikiara (I) Dredging Private Limited, Mumbai.

Names and Location of Global Majors

S.No. Name of the Company Country Area of Operation

1 M/s Ballast Ham Dredging Netherlands International

2 M/s Royal Boskalis Netherlands International

3 M/s Van Oord Acz Netherlands International

4 M/s Dredging International Belgium International

5 M/s Jan De Nul Belgium International

6 M/s Great Lakes Dredge & Dock U.S.A International

7 M/s Penta Ocean Japan International

8 CHEC China International

9 Hyundai Engineering co limited South korea International

10 Chellaram shipping limited Hong Kong International

33
 CHAPTER-3

CONCEPT OF TONNAGE TAX

34
Tonnage tax is a special scheme of taxation for shipping companies. A shipping
company can pay its tax as per this scheme instead of Section 28-43C subject to
fulfillment of certain conditions. It's an optional scheme. Section 115 VA-115VZC of
Income Tax act governs the provisions of the scheme. As per scheme tax is levied on the
basis of aggregate of tonnage income (its capacity) of ship. Hence its called tonnage tax.
Tonnage Tax is an alternative method of calculating corporation tax profits by reference
to the net tonnage of the ship operated. It is the tax paid by a shipping company based on
the total tonnage of its ships. The tonnage tax involves computation of notional profit on
the basis of number and size of ships operated and not taxing this profit at the normal
corporate tax rate. Under the Tonnage Tax scheme, the liability of a shipping company
towards taxation is determined on the basis of tonnage of this vessel or a fleet of vessels,
operated or chartered by it rather than the profit stream generated by their commercial
operations, which varies from year to year. There are countries in the world where special
tax incentives apply. Some general tax regimes could also be attractive. For example, tax
incentives could be in the form of Tonnage Tax in several countries (e.g. Germany, India,
Netherlands, USA, etc), or special tax regimes (e.g. Cyprus, Malta, Singapore, etc).
Tonnage tax is the tax levied on the tonnage of shipping companies, as opposed to the
normal corporate tax, which is based on the profits earned by them. It is an alternative
method of calculating corporation tax on the profits earned by companies which operate
ships and elect to join the tonnage tax regime. Tonnage tax companies pay tax based on
the net tonnage of the ship operated rather than by reference to the profits earned from
such operations.

PURPOSE OF TONNAGE TAX

35
  Tonnage Tax would facilitate Indian Dredging companies in quoting competitive
rates in the dredging contracts as against the foreign bidders for the contract.
 Tonnage Tax would facilitate generation of capital necessary for acquisition of
latest dredgers by the Indian companies.
 The Tonnage Tax was introduced in order to bring favorable fiscal regime helping
minimizing the cost of capital which would contribute to increase the tonnage
capacity of India to grow rapidly.

TONNAGE TAX IN INTERNATIONAL SCENARIO

Major European maritime countries i.e Norway, Netherlands, United Kingdom and
Germany etc., have taken a bold and deliberate initiative to bring down the net effective
taxation rates ( through tonnage tax or otherwise) to 1% to 2% of taxable income by
granting large number of deductions and fiscal incentives .
- All these countries have incorporated several typical features in their tax legislation by
way of incentives to promote the achievement of specific national objectives of protecting
shipping industry.

PAKISTAN
In 2001, Pakistan adopted a new merchant marine policy designed to attract ship
operators to its national flag by offering them a range of incentives, including a tonnage
tax scheme.In accordance with the tonnage tax scheme, operators of vessels registered in
Pakistan pay tonnage tax at the rate of one US dollar per gross ton, per fiscal year,
irrespective of their profits or losses. The tonnage tax scheme applies to ships and other
floating craft including tugs, dredgers, survey vessels and other specialized craft that are
owned or bareboat chartered. Dredgers are being accorded the benefit of tonnage tax in
our immediate vicinity.

SINGAPORE

36
Shipping profits derived by an enterprise covered under the AIS ( Approved International
Shipping Enterprise Scheme) is exempt from tax. In the face of intensified competition
and the changing shipping landscape, the Singapore Government extended/ enhanced the
AIS scheme governing shipping companies in Singapore by extending the definition of
qualifying ships with effect from year of assessment 2003, to include towage vessels,
salvage ships, dredgers, seismic vessels and semi submersible oil rigs. Singapore’s
economy relies substantially on income from its port related activities. If India is to make
its ports equally efficient hubs, a similar treatment for dredging is needed.
BELGIUM
Belgian tonnage tax is applicable to profits derived by dredging companies ( eg. Dredging
International and Jan de Nul) operating a sea vessel sailing under the Belgian flag for the
purpose of transporting dredged materials on the open sea. If tonnage tax regime is not
opted for, or if a vessel is considered ineligible for the same, then , amongst others,
following fiscal aids are provided to dredging companies: Accelerated depreciation (for
new vessels and for vessels appearing on a Belgian balance sheet for the first time),
exemption of capital gains(by reinvestment), tax aid for investment for Belgian
companies or Belgian agents of foreign companies.

NETHERLANDS
Dredging companies (eg. Royal Boskalis and Van Oord) in the Netherlands are eligible
for fiscal aids such as: labour cost subsidy: reduction of wage tax-this facility reduces the
labour costs for an employer engaged in the shipping business wherein the employer is
allowed to retain part of the wage taxes withheld from the salaries paid to qualified
maritime staff.Applicable only to dredging vessels that mainly operate on the sea and
not inland waterways.

UNITED KINGDOM
Shipping companies have the option of either remaining in the standard UK corporation
tax regime (with taxes calculated based on actual profits or gains from business), or
placing its shipping operations within the tonnage tax regime (with taxes based on
tonnage size and payable irrespective of actual profits or losses). The 1997 guidelines

37
with respect to tonnage tax provided for restriction of tax relief schemes to maritime
shipping activities. Questions have subsequently arisen about the extent to which certain
activities, such as towage and dredging, can be a maritime shipping activity. The 2004
Community Guidelines on State Aids to Maritime transport issued by European
Commission clarifies that transport of extracted materials at deep sea can be classified as
maritime activity for the purpose of falling within the ambit of tonnage tax scheme. The
UK Government has put the draft legislation extending the tonnage tax scheme to
dredging companies carrying on qualifying maritime activity i.e transport of extracted
materials at sea by self-propelled dredgers possessing their own cargo hold. The draft
legislation proposed to be made effective from July1,2005 has been placed for public
debate.

APPLICATION OF TONNAGE TAX IN INDIA

In order to give effect to the Tonnage Tax system in India, suitable provisions or
amendments in the Income Tax Act would have to be prescribed. The provisions should
include the following:
1. Basis : Most commonly accepted international standards of tonnage with
reference to which notional income can be computed. Most of the countries which
have adopted Tonnage Tax system have kept NRT(Net Registered Tonnage)as the
basis instead of GRT(Gross Registered Tonnage) or DWT(Dead Weight Tonnage)
2. Scope of income: It should lay down well-defined criteria for the eligibility of
ships as also income eligible for Tonnage Tax system. It should cover the ship
operating and chartering income
3. Entry/Exit Rules :The Tonnage Tax system should provide clear and
unambiguous ground rules for entry and exit as also procedure for assessment
and clarity about existing unavailed benefits under corporate tax regime.
4. Qualified Enterprise: Strategic, commercial and technical management of the
Shipping company qualifying for the Tonnage Tax regime should be located in
India.
5. Minimum lock-in-period: To an enterprise which opts for Tonnage Tax regime,

38
 Minimum lock-in-period of say 10 years should be prescribed. Needless to
mention shipping companies must have the option of to choose to either remain in
the corporate tax regime or go to new Tonnage Tax regime.
6. Liability: Once a shipping company opts for Tonnage Tax, a minimum of 20% of
Book profit should be credited every year to a separate reserve account to be
utilized for acquisition of ships within a minimum period of 8 years

ADVANTAGES OF TONNNAGE TAX SYSTEM

 An easily accessible, fixed rate, low tax regime for shipping

 Ease in preparation of annual tax returns
 Long term capital expenditure decisions can be made with known rates of taxation
 Deferred tax liability would be phased out, thus increasing the reported earnings
per share and strengthening the balance sheet.
 It will ensure additional tax system for future growth of Indian shipping and help
to meet India’s aspiration to build up a strong maritime fleet commensurate with
its national trade.
 Introduction of tonnage tax at globally competitive rates will ensure that Indian
ship owners donot have to seek to flag out their new acquistions or their existing
vessels overseas, thus ensuring a build-up of tonnage under Indian flag and
employment of Indian crew.
 It benefits the profit and loss account and balance sheet because there is no
deferred tax liability. It would directly increase earnings per share, which is an
important yardstick by which performance is judged.
.
DISADVANTAGE
The disadvantage of the tonnage tax will be payable even during the period ships/
enterprises are actually making a loss. Shipping industry being cyclical in nature, in case

39
of prolonged downturn in the freight market, the ship owners will have to continue to
make payment towards Tonnage Tax even during depressed shipping markets.

QUALIFYING SHIP
A ship is a qualifying ship
-Sea going ship/vessel of Net tonnage >= 15
-Ship registered under Merchant Shipping Act or registered outside India for license
obtained from Directorate of General Shipping
-Valid Certificate of ship indicating Net Tonnage

EXCLUSIONS
Indian Tonnage Tax Scheme is not available to following ships
-Sea going ship or vessel if the main purpose for which it is used is the provision of
goods or services of a kind normally provided on land, pleasure crafts and harbour and
river ferries- Such ships are not involved in maritime transport activity but merely
availing maritime facilities for providing luxury services.
- Fishing vessels-Ships not involved in maritime transport but used as apparatus to
conduct “ Fishing activity”, which is the core activity.
-Factory ships/ offshore installations-The core activity conducted is other than maritime
transport.

CONDITIONS TO BE SATISFIED FOR TONNAGE TAX SCHEME

 Option: The company should opt for the Tonnage Tax scheme in accordance with
Sec.115 VP.
 Tonnage Tax Reserve Account: The company should transfer the specified
amount of Book Profits to the Tonnage Tax Reserve Account.
 Minimun training requirement for Tonnage Tax company: The company shall
comply with the minimum training requirement in respect of trainee officers as

40
 per the guidelines framed by the Director General of Shipping and notified in the
Official Gazette. A copy of the certificate from Director-General Shipping to the
effect that company has complied with the minimum training requirements along
with the return of income filed by the company.

ELEMENTS OF THE TRAINING SCHEME

The main elements of the scheme are
Basic Training Commitment (BTC), an annual plan produced by the company setting
out the Tonnage Tax company’s obligation.
Annual Adjustment (AA), a retrospective update of BTC made every year in respect
of the preceeding year, to account for any changes in training obligation arising as a
result of net increase/decrease in number of vessels entered in tonnage tax regime to
arrive at minimum training requirement for that financial year.
Payment in lieu of Training (PILOT) by tonnage tax company to Maritime Training
Trust (Trust) if necessary to meet the obligation under minimum training requirement.
Training fee payable by trainee officer and tonnage tax company in equal proportion
and stipend to be paid by tonnage tax company to trainee officers.
 Maintenance and audit of accounts: The Tonnage Tax company should maintain
separate books of account in respect of business of operating qualifying ships and
also furnishes the report of a Chartered Accountant in Form 66, along with the
return of income for that previous year.

PROCEDURE FOR OPTING OF TONNAGE TAX SCHEME

Application : A qualifying company may opt for Tonnage Tax scheme by making an
application in the prescribed form and manner, to the JCIT having jurisdiction over the
company.

41
Order to be passed: On receipt of an application, JCIT may call for such information of
documents from the company if it thinks necessary to satisfy eligibility criteria of the
company. If JCIT feels satisfied he shall pass an order in writing approving option for the
Tonnage Tax scheme. If he is not satisfied, after giving the applicant a reasonable
opportunity of being heard, pass an order in writing refusing to approve the option for
Tonnage Tax scheme.
Time limit for order: Every order granting or refusing the option for Tonnage Tax
scheme remains in force for a period of ten years from the date on which option for
Tonnage Tax has been exercised
Effect of order: when an order granting approval is passed, the provisions shall apply
from the assessment year relevant to the previous year.
Period of scheme: An option for Tonnage Tax scheme, after its approval remains in force
for a period of ten years from the date on which such option has been exercised.
Renewal of Tonnage Tax scheme: The option for Tonnage Tax scheme may be renewed
within one year from the end of the previous year in which the option ceases to have
effect.
Cessation : An option for Tonnage Tax scheme shall ceases to have effect from the
assessment year relevant to previous year when qualifying company ceases to be a
qualifying company, when default is made in complying with the provisions, when
Tonnage Tax company is excluded from Tonnage Tax scheme

LIMIT FOR CHARTER IN OF TONNAGE

49% Limit : In the case of every company which has opted for Tonnage Tax Scheme,
not more than 49% of the Net Tonnage of the qualifying ships operated by it during any
previous year shall be chartered in.
Calculation of limit The proportion of Net Tonnage in respect of a previous year shall be
calculated based on the average of Net Tonnage during that computed in the following
manner
Average net tonnage for charter-in of Tonnage= Total no of chartered-in-ton days/ Total
number of ton days operated by the company

42
Effect of excess Net Tonnage : Where the Net Tonnage of ships chartered in exceeds 49%
limit during any previous year, the total income of such company in relation to that
previous year shall be computed as if the option for Tonnage Tax scheme doesnot have
effect for that previous year.
Continuous excess for two years: Where the 49% limit had exceeded in any two
consecutive previous years, the option for Tonnage Tax scheme shall cease to have effect
from the beginning of the previous year following the second consecutive previous year
in which the limit had exceeded.
Limit for charter in of tonnage –
Ratio = Total Net Tonnage for “Charter In” of Qualifying Ships * 100
Total Net Tonnage for “Charter In & Out” of Qualifying Ships
This ratio shall not exceed 49 %, otherwise entire shipping income shall be
calculated in accordance with normal provisions of Income Tax Act, for such
previous year.

Computation of Daily Tonnage Income

Tonnage Income (On basis of each Qualifying Ship taken as individually) –
Tonnage Income = Daily Tonnage Income * No. of Days ship operated as qualifying
ship

Net Tonnage Daily Tonnage Income

Upto 1000 tons Rs 46 per 100 tons
1000 – 10000 tons Rs 460 + Rs 35 per 100 tons
exceeding 1000 tons
10000 – 25000 tons Rs 3610 + Rs 28 per 100 tons
exceeding 10000 tons
Exceeding 25000 tons Rs 7810 + Rs 19 per 100 tons
exceeding 25000 tons

Computation of Tonnage Income

 Compute daily tonnage income based on net tonnage
 Tonnage income of each ship= daily tonnage income* number of days

43
 Where number of days=
-number of days in the previous year or
- number of days in part of the previous year in case the ship is operated by the
company as a qualifying ship for only part of the previous year as the case may
 Total Tonnage income of the company= total of tonnage income of all qualifying
ships
Joint Operations : If a qualifying ship is operated by two or more companies by way of
joint interest in the ship or by way of an agreement for the use of the ship. The tonnage
income of each such company shall be an amount equal to a share of income
proportionate to its share of that interest.
Deductions, Set-offs, Adjustments etc. from Tonnage Income- No deduction shall be
allowed in relation to the Profits and Gains from the business of operating qualifying
ships.
Exclusions for MAT purposes: The Book Profit or loss derived from the activities of a
Tonnage Tax company shall be excluded from the Book profit of the company.
Computation of relevant shipping income
The relevant shipping income shall not be chargeable to tax. Relevant shipping income
refers to the profits from core activities + profits from incidental activities

TRANSFER TO PROFITS TO TONNAGE TAX RESERVE ACCOUNT

Tonnage Tax Reserve: A Tonnage Tax company shall transfer an amount not less than
20% of the book profit derived from its core and incidental activities in previous year.
The company may transfer a sum in excess of 20% of the book profit. The transfer is
credited to the Tonnage Tax Reserve Account.
Utilisation: The 20% transfer and excess transfer if any shall be utilized by the company
before the expiry of a period of eight years next following the previous year in which the
amount was credited-
- for acquiring a new ship for the purposes of the business of the company
- until the acquisition of a new ship, for the purposes of the business of operating
qualifying ships 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.

44
Transfer of profits to Tonnage Tax Reserve Account
Transfer Amount = 20 % of Book profits (as calculated for the purposes of Sec 115-JB)
from Core & Incidental Activities.
Utilization of such reserve within 8 years of credit –
Only for the purposes of acquiring new ships or for the operation of qualifying ships (Not
be used for distribution of dividends, remittances outside India or for creation of asset
outside India)
Non-creation of Reserve: If the Tonnage Tax Reserve Account is not created for any two
consecutive previous years, the company’s option for Tonnage Tax scheme shall cease to
have effect from the beginning of the previous year following the second consecutive
previous year in which the failure to create the reserve had occurred.

45
 CHAPTER-4

INTRODUCTION OF TONNAGE TAX

 Tonnage Tax scheme has been introduced from financial year 2004-05 under
Finance Act 2004. According to this scheme qualifying ships can opt to pay
tonnage tax computed at prescribed rates in lieu of normal corporate tax leviable
on the profits and gains of business of operators of ships.

46
  Under the scheme, dredgers have been specifically excluded from the definition of
qualifying ships. Thus DCI/ other Indian dredging companies are denied the
benefit of the Tonnage tax scheme of taxation while losing the existing benefit
under section 33AC of the Act.
 Tonnage Tax facility was extended to DCI in the Assessment Year 2006-07 with a
view that dredgers should not be included in exclusions as dredging is an
integral part of maritime activity and the transportation of goods across oceans

CORPORATE TAX
Till Assessment Year 2005-06, DCI was covered under regular tax provisions as per
Income Tax Act the applicable sections Sec 28-43C the income has to be assessed and
tax has to be payable accordingly.
The manner of total income determination under Sec 28-43C under regular tax provisions
are given below

PROFORMA OF CORPORATE TAX FOR ASSESSMENT YEAR 2005-06

Status : Limited
Assessment Year: 2005-06
Previous Year ended: 31-03-2005

STATEMENT SHOWING TOTAL INCOME

47
 RUPEES RUPEES
S.NO PARTICULARS
( in lakhs) (in lakhs)

INCOME FROM BUSINESS :Net profit 17585.00.00

before taxation for the year
(+)

Depreciation considered separately

1000.00
Donations considered separately 20.00
VRS compensation paid 30.00
Disallowance made under section 43B 20.00
Provision for doubtful debts( schedule XII of
annual accounts) 130.00
Provision for unserviceable assets (schedule
XIII OF annual accounts) 25.00
Provision for dry dock repairs due(schedule
XI of annual accounts) 200.00
Loss on sale of assets 5.00
1430.00

19015.00
TOTAL

LESS:

Depreciation as per IT rules 1200.00

Allowable VRS u/s 35DDA of the act

Bonus and gratuity item no.1 of tax audit 5.00

report disallowed in the earlier year and paid
in current previous year

Productivity linked incentive bonus( as per

Annexure VA of Tax Audit report 20.00

Provision no longer required written back as

per Schedule.No.XV of annual accounts
disallowed in the previous assessment years
when such provisions were made

48
a) provision for doubtful debts 75.00
b) provision for other claims 45.00
c) provision for dry-dock repairs due 30.00 150.00
( scheduleXI)
1375.00
GROSS TOTAL INCOME 17640.00

(-) Deductions: under chapter VIA of the Act 50.00

Donations under Sec 80G
Under Sec 80 I in respect of dredgers as per 100.00 105.00
Annexure-VII of Tax Audit report

TAXABLE INCOME 17490.00

Tax thereon @35% 6121.50

Surcharge thereon @2.5%

153.03
Education cess thereon @ 2%
122.43
TAX LIABILITY 6396.96

LESS
a) Advance Tax paid;
i) 1st instalment on 15-06-04 (15%) 959.54
ii) 2nd instalment on 15-09-04 (30%) 1919.10
iii) 3rd instalment on 15-12-04 (30%) 1919.10
iv)4th instalment on 11-03-05 (25%) 1599.24

b) TDS certificate as per list enclosed 500.00

6896.98

49
 BALANCE REFUNDABLE 500.00

It is observed that the tax liability has been worked out Assessment Year 2005-06 is
Rs.63.96 crores..Since DCI opted for Tonnage Tax scheme from Assessment Year
2006-07 onwards, the tax liability has come down Rs.10.10 crore for Assessment Year
2006-07 with a saving of Rs. 53.56 crores when compared to regular tax for Assessment
Year 2005-06. This Tonnage Tax scheme is applicable to DCI for about 10 years.
The decision of Central Government is very much appreciable for encouraging Dredging
industry while introducing Tonnage Tax scheme to shipping industry.

50
 APPLICATION OF TONNAGE TAX AT DCI

1. Under Sec 115VC, DCI is one of the qualifying companies to claim Tonnage Tax
scheme
2. In general all companies either in the Tonnage Tax scheme or regular tax paying
companies have to follow the below procedure in respect of Income Tax matters.
Arranging of Advance Tax in 4 instalments as per Sec 208

PARTICULARS PERCENTAGE CUMULATIVE DUE DATE

PERCENTAGE
First instalment on or before 15% 15% 15 th June
15th June of every year
Second instalment on or before 30% 45% 15th Sept
15th Sept
Third instalment on or before 30% 75% 15th Dec
15th Dec
Final instalment on or before 25% 100% 30th March
15 th March

i..DCI has not made any Advance Tax for the Assessment Year 2006-07 to 2009-10.
Since TDS( Tax deducted at source) recovered by customers more than tax liability and
DCI has claimed refund from Income Tax department from Assessment Year 2006-07 to
2009-10.
ii..DCI has conducted Tax Audit under Section 44AB of Income Tax Act filed annual
returns for Assessment Year 2006-07 to 2009-10 before due date i.e Sept 30 of the
respective years.

3. As per Section 115VP(2), the time period of application of this scheme is 10 years.
Under this DCI opted for Tonnage Tax scheme while filing an application before
JCIT(Joint Commissioner of Income Tax) range-3, Visakhapatnam vide to its application
dated 28-06-2005. Accordingly the JCIT(Joint Commissioner of Income Tax) has

51
accorded approval for granting Tonnage Tax scheme to DCI vide Order No.FNO-R-
3/Tech-1/0506 dated 22-07-2005, granting the period of scheme for 10 years from
Assessment Year 2006-07 to 2015-16.
4. As per Section 115VT of Tonnage Tax scheme, DCI has to create Tonnage Tax
Reserve not less than 20% of book profits and the reserve so created should be utilized
for acquiring new vessels within a period of 8 years. If this reserve was not utilized for
acquiring new vessel within 8 years, the reserve so created will be taxed under regular tax
provisions. Accordingly DCI has created Tonnage Tax reserve upto Assessment Year
2008-09 are given below.

CALCULATION OF TONNAGE TAX RESERVE TO BE MADE UNDER

SECTION 115 VT UNDER INCOME TAX ACT
Financial Year 2009-2010
Assessment Year 2010-2011

Particulars Amount
(in lakhs)
Net profit after tax before transfer to reserves 4637.00
Under section 115 VT of the Inome Tax Act
(+) 1. Provision for doubtful debts 2000.00
2.Provision towards Income Tax
(a) current year tax 1000.00
(b) FBT for previous year 200.00
@ provision for impairment of 50.00 3250.00
loss
. TOTAL 7887.00
Reserves under section 115 VT of Income Tax Act @20% 1577.40
Say 1577.4

52
 AMOUNT CREDITED
SERIAL NO ASSESSMENT YEAR TO TONNAGE TAX
RESERVE (Rs in crores)
1 2006-07 40
2 2007-08 42
3 2008-09 35
4 2009-10 16
s

5. As per Section 115 VU, Tonnage Tax company shall comply with the minimum
training requirement in respect of trainee officers as per the guidelines framed by the
Directorate General of Shipping .Accordingly DCI has obtained training completion
certificate from Directorate General of Shipping, Mumbai for the Assessment Year 2006-
07 to 2009-10 and filed with Income Tax Authorities along with annual return.

6. As per Sectioon 115 VW, Tonnage Tax scheme company should maintain separate
books of accounts in respect of business of operating qualifying ships and furnished the
report of a Chartered Accountant in Form.66 along with the return of income for the
previous year.
DCI has been maintaining separate books of accounts in respect of business of operating
qualifying ships and a report of a Chartered Accountant in Form.66 with Tax Audit
report has been filed with the return of income from Assessment Year 2006-07 to
2009-10

ANNEXURE TO FORM NO.66 UNDER INCOME TAX RULES

COMPUTATION OF TONNAGE INCOME UNDER SECTION 115VG

53
Name of the Net Owned/ Kind Daily No. Tonnage
Qualifying ship Tonnage/ Chartered of tonnage of Income
Deemed charter Income Days
Tonnage
A.OWNED
DREDGERS

DR-V 2005 owned N.A 812 96 77952

DR-VI 2139 owned N.A 859 182 156338

DR-VII 746 owned N.A 343 189 64827

DR-VIII 4437 owned N.A 1663 204 339252

DR-IX 1547 owned N.A 651 210 136710

DR-XII 1906 owned N.A 777 93 72261

DR-XIV 1906 owned N.A 777 317 246309

DR-XV 2421 owned N.A 957 273 261261

DR-XVI 2414 owned N.A 955 291 277905

DR-XVII 2414 owned N.A 955 311 297005

1019
Aquarius owned N.A 467 14 6538

Total( A) 24505 owned 2104832

B.CHARTERED-IN
DREDGERS

Prof. Gorju nov Chartered - 854 299 255346

2125

Dr.Pacifique 2584 Chartered - 1014 125 126750

Safar Hamsa 2240 Chartered - 924 142 131208

Trlokiprem 1497 Chartered - 634 170 107780

Banwariprem 2183 Chartered - 874 130 113620

54
Daryamantham 1301 Chartered - 565 96 54240

Total(B) 11930 788944

TOTAL(A+B) 36435 2893776

7. Under Section 115VA and Section 115 V, computation of Tonnage Income has to be
made and should be filed along with the return. Accordingly, DCI computed Tonnage
Tax and filed annual returns for the Assessment Year 2006-07 to 2009-10.
Details are as under:
S.NO ASSESSMENT YEAR AMOUNT OF TONNAGE
TAX (Rs in crores)
1 2006-07 12.41
2 2007-08 15.80
3 2008-09 14.06
4 2009-10 14.11

PROFORMA OF TONNAGE TAX CALCULATION FOR THE ASSESSMENT

YEAR 2008-09 IS PLACED BELOW
Assessment Year 2008-2009
Previous Year 31-3-2008

55
STATEMENT SHOWING TOTAL INCOME

Particulars Amount
(Rs. in
Lakhs)
INCOME FROM BUSINESS:
Net profit before taxation as per the profit and loss account 15071.00
For the year
(-) profit relevant to shipping income 10951.41
4119.59

(+)tonnage income under sec 115 VG of the Act 29.00

4148.59
TAXABLE INCOME

1244.57
Income tax there on at 30%
(+)surcharge at 10% there on 124.45
37.33
-(+) 3% Education cess & Secondary and Higher education cess
Total tax payable 1406.36
(-)Tax deducted at source
1908.36

502.00
BALANCE REFUNDABLE

STATISTICAL TECHNIQUES

TREND PROJECTION

Trend projection method is a classical method of business forecasting. This method is

essentially concerned with the study of movement of variable through time. The trend
projection method is used under the assumption that the factors responsible for the past
trends in variables to be projected will continue to play their part in future in the same

56
manner and to the same extend as they did in the past in determining the magnitude and
direction of the variable.

Equation for linear trend

Tt=b0+b1t

where Tt=trend value of time series in period t, t=time

b0=intercept of the trend line, b1=slope of the trend line

• Formulas for computing the estimated regression coefficients ( b1 and b0 ) in

equation follow Using the method of least squares, the formula for the trend
projection is:

Yt = b0 + b1t.

where: Yt = trend forecast for time period t

b1 = slope of the trend line

b0 = trend line projection for time 0

b1= S tYt – (St Yt )/n / St 2 - (St )2 /n

b0= Y-b1 t

57
 where: Yt = observed value of the time series at time period t

Y = average of the observed values for Yt

t = average time period for the n observations

FORECASTING

Y T
t t Yt T2
1 12.41 12.41 1
2 15.8 31.6 4
3 14.06 42.18 9
4 14.11 56.44 16

142.6
10 56.38 3 30

t=10/
4 Yt=56.38/4
Yt=14.0
t=2.5 9

b1=142.63-(10*56.38)/4
30-(100)/4

b1=142.63-
140.95
30-
25

b1=1.68/5
b1=0.3
36

b0=14.09-
0.336(2.5)
b0=14.09-0.84
b0=13.

58
25

Tt=13.25+0.336
t

Tt=13.25+0.336 Tt=13.25+0.336 Tt=13.25+0.33

(5) (6) 6(7)
Tt=13.25+0.336
(5) Tt=13.25+2.016 Tt=13.25+2.35
Tt=15.2 Tt=15.
Tt=13.25+1.68 66 6
Tt=14.9
3

Tt=13.25+0.336 Tt=13.25+0.336
(8) (9)
Tt=13.25+2.688 Tt=13.25+3.024
Tt=15.9 Tt=16.2
38 7

FORECASTED FIGURES
2010-
11 14.93
2011-
12 15.27
2012-
13 15.6
2013-
14 15.94
2014-
15 16.27

YEAR TONNAGE
TA
X
2006-
07 12.41
2007-
08 15.8
2008-
09 14.06
2009-
10 14.11
2010- 14.93

59
 11
2011-
12 15.27
2012-
13 15.6
2013-
14 15.94
2014-
15 16.27

CORRELATION
Correlation is a statistical measurement of the relationship between two variables.
Possible correlations range from +1 to –1. A zero correlation indicates that there is no
relationship between the variables. A correlation of –1 indicates a perfect negative
correlation, meaning that as one variable goes up, the other goes down. A correlation of

60
+1 indicates a perfect positive correlation, meaning that both variables move in the same
direction together.

CORRELATION WITH PAT

Here X denotes Profit After Tax (PAT) and Y denotes Tonnage Tax
Y*
X Y X*Y X*X Y
2189. 31138.
176.46 12.41 86 13 154
2981. 35619. 249.6
188.73 15.8 93 01 4
2176. 23969. 197.6
154.82 14.06 76 23 8
654.2 2150.1 199.0
46.37 14.11 8 7 9
566.3 8002. 92876. 800.4
8 56.38 83 54 1

Correlation(r) =[ NΣXY - (ΣX)(ΣY) / Sqrt([NΣX2 - (ΣX)2][NΣY2 - (ΣY)2])]

[4*8002.83- 1-
(566.38*56.38)/sqrt(4*92876.54- (56.38)
= (566.38)2][ 2][4*800.41-9-(56.38)2] 2]
32011.32-
31932.50/sqrt(371506.16-
= 320786.30)(3201.64 4-3178.70]

= 78.82/sqrt(50719.86)(22.94)

= 78.82/sqrt(1163513.59)

= 78.82/1078.66

= 0.073

61
 By doing correlation with Profit after Tax (PAT) and Tonnage Tax we
found that positive relationship existed between the variables because
r= + 0.073

CORRELATION WITH EPS

Here X denotes Earnings Per Share (EPS) and Y denotes Tonnage Tax.

X* Y*
X Y Y X*X Y
756.0 3711.2 154.0
60.92 12.41 2 4 1
1027. 249.6
65.03 15.8 47 4228.9 4
741.5 2781.5 197.6
52.74 14.06 2 1 8
221.6 199.0
15.71 14.11 6 246.8 9
2746. 10968. 800.4
194.4 56.38 67 45 2

Correlation(r) =[ NΣXY - (ΣX)(ΣY) / Sqrt([NΣX2 - (ΣX)2][NΣY2 - (ΣY)2])]

4*2746.67-194.4*56.38/sqrt(4*10968.45-
= (194.4)2][4*800.42-(56.38)2]
10986.68-10960.27/sqrt[(43873.8-
= 37791.36)-(3201.68-3178.70)

= 26.41/sqrt(6082.44*22.98)

= 26.41/373.86

62
 = 0.07

By doing correlation with Earnings Per Share(EPS) and Tonnage Tax

we found that positive relationship existed between the variables
because r= + 0.07.

CORRELATION WITH DIVIDEND

Here X denotes Dividend and Y denotes Tonnage Tax

X*
X Y X*Y X Y*Y
1861. 154.0
150 12.41 5 22500 1
249.6
150 15.8 2370 22500 4
197.6
150 14.06 2109 22500 8
199.0
50 14.11 705.5 2500 9
800.4
500 56.38 7046 70000 2

Correlation(r) =[ NΣXY - (ΣX)(ΣY) / Sqrt([NΣX2 - (ΣX)2][NΣY2 - (ΣY)2])]

63
By doing correlation with Dividend and Tonnage Tax we found that negative
relationship existed between the variables because r= -0.007

SUGGESTIONS
 DCI should comply with minimum training requirement otherwise penalty would
be collected
 DCI should see through that the Net Tonnage of ships chartered in should not
exceed 49% limit in any two consecutive years otherwise the option for Tonnage
Tax scheme ceases
 Loss relating to business of operating qualifying ships of DCI shall not be carried
forward or set off.
 Book profit or loss derived from the activities of DCI shall be excluded from book
profit of DCI

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  Relevant shipping income (profits from core activities+ profits from incidental
activities) shall not chargeable to tax
 20% transfer of book profits shall be utilized by DCI before the expiry of eight
years otherwise tax have to be paid as regular tax

REFERENCES

www.dredge-india.nic.in

www.en.wikipedia.org/wiki/Dredging

www.google.com

Books on Income Tax

DCI Annual Reports

65