By virtue of section 61, if an asset is transferred under a “revocable transfer”, income from such asset is taxable in the hands of the transferor. The transfer for this purpose includes any settlement, trust, covenant, agreement or arrangement.
1. Examples of Revocable Transfer with different situations :
In the following cases, a Transfer is a Revocable Transfer :
Situations |
Example |
Situation 1 - If an asset is transferred under a trust and it is revocable during the lifetime of the beneficiary. |
X transfers a house property to a trust for the benefit of A and B. However,
X has a right to revoke the trust during the lifetime of A and/or B. It is a
revocable transfer and income arising from the house property is taxable in the
hands of X. |
Situation 2 - If an asset is transferred to a person and it is revocable during the lifetime of transferee. |
X transfers a house property to A. However, X has a right to revoke the transfer during the lifetime of A. It is a revocable transfer and income arising from the house property is taxable in the hands of X. |
Situation 3 - If an asset is transferred before April 1, 1961 and it is revoca- ble within six years. |
X transfers an asset on March 31,1961. It is revocable on or before June 6,1963. It is a revocable transfer. Income arising from the asset is taxable in the hands of X. Conversely, if X transfers an asset before April 1,1961 and it is revocable after 6 years (say, on April 10, 1967), it is not taken as a revocable transfer. |
Situation 4 - If the transfer contains any provision to re-transfer the asset (or income therefrom) to the trans- feror directly or indirectly, wholly or partly. |
X transfers an asset. Under the terms of transfer, on or after April 1, 1998, he has a right to utilize the income of the asset for his benefit. However, he has not exercised this right as yet. On or after April 1, 1998, income of the asset would be taxable in the hands of X, even if he has not exercised the aforesaid right. |
Situation 5 - if the transferor has any right to reassume power over the asset (or income therefrom) directly or indirectly, wholly or partly. |
X transfers an asset. Under the terms of transfer, he has a right to use the asset for the personal benefits of his family members whenever he wants. Till date, he has not exercised this right. It is a revocable transfer. The entire income from the asset would be taxable in the hands of X. |
2. When a transfer is Revocable [Section 63]:
As per section 63, a transfer for the purpose of sections 60, 61 and 62 shall be deemed to be revocable if:
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it contains any provision for the re-transfer, directly or indirectly of the whole or any part of the income or assets to the transferor, during the life time of the beneficiary or the transferee as the case may be, or
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it gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets during the life time of the beneficiary or the transferee as the case may be.
3. Section 61 Not applicable, if the transfer is Irrevocable for a specified period [Section 62]:
As per section 62(1), the provisions of revocable transfer, discussed in section 61, shall not apply in certain circumstances. Such circumstances are—
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in the case of transfer by way of trust, the transfer is not revocable during the life time of the beneficiary;
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in the case of any other transfer, the transfer is not revocable during the life time of the transferee;
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in case the transfer is made before 1.4.1961, the transfer is not revocable for a period exceeding 6 years.
The above exceptions are applicable provided the transferor derives no direct or indirect benefit from such income.
In the above cases, the income shall be taxable in the hands of the transferee.
Although in case of transfer mentioned as per section 62 in clauses (a), (b) and (c) above, the income from such assets transferred shall not be taxable in the hands of transferor as it is not treated as revocable transfer, but it will be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises and shall then be included in his total income. [Section 62(2)] |
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