Section 97 — Chargeability of income in transfer of assets
Old Act equivalent: Section 61 of IT Act 1961 Sub-part: Chapter V — Income of Other Persons Included in Total Income
Statutory Text
(1) All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as income of the transferor and shall be included in his total income.
(2) The provisions of sub-section (1) shall not apply,—
(a) where a transfer is by way of trust which is not revocable during the lifetime of the beneficiary and in case of any other transfer, is not revocable during the lifetime of the transferee; and
(b) the transferor does not derive any direct or indirect benefit from such income in cases referred to in clause (a).
(3) Irrespective of the provisions of sub-section (2), all income arising to any person by virtue of such transfer shall be chargeable to income-tax as income of the transferor as and when the power to revoke such transfer arises, and shall then be included in his total income.
Sub-sections
Sub-section (1)
Income from revocable transfer of assets is taxable as income of the transferor.
Sub-section (2)
Exception: does not apply where (a) the transfer/trust is irrevocable during the lifetime of the beneficiary/transferee, AND (b) the transferor derives no direct or indirect benefit from such income.
Sub-section (3)
Override: even if sub-section (2) exception applied initially, once the power to revoke arises, the income becomes taxable in the transferor’s hands from that point.
Provisos
None.
Explanations
None.
Tables
None.
Key Structure
- Applies to: Any person who transfers assets under a revocable arrangement
- General rule (sub-section 1): Income from revocable transfer = transferor’s income
- Exception (sub-section 2): Two cumulative conditions must be met: (i) irrevocable during lifetime of beneficiary/transferee, AND (ii) transferor derives no benefit
- Clawback (sub-section 3): If the power to revoke subsequently arises, income is clubbed from that point
- Monetary limits: None
Cross-References
- s096-transfer-income — Section 96: transfer of income without transfer of assets
- s098-definitions — Section 98: defines “transfer” and “revocable transfer”
- s099-clubbing-spouse-minor — Section 99: specific clubbing for spouse/minor
- s100-liability — Section 100: liability of person whose income is clubbed
Amendment Notes
None noted from the extracted pages.
Practical Notes
- The two conditions in sub-section (2) are cumulative (both must be satisfied): the transfer must be irrevocable during the beneficiary’s lifetime AND the transferor must not benefit. If either condition fails, income is clubbed.
- Sub-section (3) is a clawback: even if the transfer was genuinely irrevocable when made, if a power to revoke later arises (e.g., by amendment of trust deed), clubbing kicks in from that point.
- “Direct or indirect benefit” is broad — even if the transferor benefits indirectly (e.g., family member’s benefit that reduces the transferor’s obligations), the exception may not apply.