CHAPTER V — INCOME OF OTHER PERSONS INCLUDED IN TOTAL INCOME OF ASSESSEE

Section 96 — Transfer of Income without Transfer of Assets

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Transfer of income without transfer of assets.

96. All income arising to any person by virtue of a transfer,—

(a) whether revocable or not, and whether effected before or after the commencement of this Act; and

(b) where there is no transfer of assets from which such income arises,

shall be chargeable to income-tax as the income of the transferor and shall be included in his total income.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 60 of the 1961 Act — Transfer of income where there is no transfer of assets

60. All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income.

BLOCK 3 : COMMENTARY

Section 96 re-states section 60 of the 1961 Act in identical substantive terms. The mischief is naked income-assignment: the transferor purports to transfer the right to receive income, while retaining the underlying asset. Without s. 96, the transferor could divert dividends, rent, interest, royalties to a low-tax person while keeping the underlying shares / property / loan / patent in his own name. The section anchors the income to the asset's owner, not to the assignee.

Foundational principle. Income follows the asset; income cannot exist independently of its source. The Privy Council's decision in Bejoy Singh Dudhuria v. CIT (1933) 1 ITR 135 (PC) — distinguishing application of income from diversion at source — and the Supreme Court's elaboration in CIT v. Sitaldas Tirathdas (1961) 41 ITR 367 (SC) define the contour. Where the transferor has divested himself of the source, the income is the transferee's; where he has only assigned the income stream while retaining the source, s. 96 charges the income in his own hands.

Practical examples. (i) An individual assigns dividends on his shares to his minor child while retaining the shares — clubbed under s. 96 in the parent's hands. (ii) A landlord assigns rent to his spouse without transferring the property — clubbed in the landlord's hands. (iii) A creditor assigns interest receivable to his daughter-in-law while retaining the loan asset — clubbed in the creditor's hands. The common thread is retention of the asset.

Why s. 96 is not made redundant by s. 99 (clubbing of spouse / minor / son's wife). Section 99 catches transfers of asset to specific relatives without consideration; s. 96 catches the assignment of income alone (i.e., without transfer of asset) to any person — relative or stranger. The two operate in distinct fields and must be applied independently.

Practical takeaway. Whenever a client structures income-stream assignment without parallel asset transfer (e.g., declaration of trust on income only; assignment of dividend rights; assignment of rent), apply s. 96 — clubbing in the transferor's hands. Drafting the assignment as 'irrevocable' does not defeat the clubbing — s. 96 expressly applies whether the assignment is revocable or irrevocable, and irrespective of when the transfer was effected.

Section 97 — Revocable Transfer of Assets

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Chargeability of income in transfer of assets.

97. (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.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Sections 61, 62, 63 of the 1961 Act — Revocable transfer; carve-out; definition

Section 61 — All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income.

Section 62 — Carve-out for trusts not revocable during lifetime of beneficiary, or transfers not revocable during lifetime of transferee, provided transferor derives no direct or indirect benefit. Plus the override that arises when the power to revoke does ultimately arise.

Section 63 — Definition of "transfer" and "revocable transfer" — preserved in s. 98 of new Act.

BLOCK 3 : COMMENTARY

Section 97 of the new Act collapses old ss. 61 and 62 of the 1961 Act into one section with three sub-sections. The substantive rule is preserved verbatim: any revocable transfer of an asset chargeable to income-tax is taxed in the transferor's hands. The carve-out for life-time-irrevocable trusts and life-time-irrevocable transfers (with the no-benefit-to-transferor rider) is preserved. The override on the power-to-revoke arising is preserved.

Mechanism. A revocable transfer is one where the transferor reserves a right (express or implied) to take back the asset or income at his pleasure. The income from such asset is statutorily attributed to the transferor. The carve-out applies only where the transferor cannot revoke during the lifetime of the beneficiary / transferee AND the transferor derives no direct or indirect benefit. The carve-out is a strict gate — both conditions must be satisfied.

Sub-section (3) — re-attachment when revocability arises. Where, during the term of the trust or transfer, the power to revoke arises (e.g., trust deed clause becoming exercisable on a contingency), the income from that point forward is again the transferor's. This is a 'flip' rule — the carve-out under sub-section (2) operates only so long as the transfer remains irrevocable in the qualifying sense.

Continuity of jurisprudence. CIT v. Mrs. Anuradha S. Sukhe (2006) 281 ITR 174 (Bom.) — settled that revocability is determined by reference to the deed and not by hypothetical future events; CIT v. Bagyalakshmi & Co. (1965) 55 ITR 660 (SC) — discusses trust revocability. Both authorities continue to apply.

Practical takeaway. (i) When drafting trust deeds for HNI estate planning: ensure the trust is irrevocable for the lifetime of the beneficiary (or, in case of non-trust transfer, the transferee) AND the settlor / transferor derives no benefit (direct or indirect) from the trust income. The two conditions together carve the deed out of s. 97. (ii) Avoid 'reservation of trustee-removal' or 'reservation of beneficiary-replacement' powers — they may be construed as backdoor revocation. (iii) Income through a private discretionary trust where the settlor retains beneficial-class status will fail s. 97; structure as fixed-share irrevocable trust where possible.

Section 98 — "Transfer" and "Revocable Transfer" Defined

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

"Transfer" and "revocable transfer" defined.

98. For the purposes of sections 96 and 97, and this section,—

(a) "transfer" includes any settlement, trust, covenant, agreement or arrangement;

(b) a transfer shall be deemed to be revocable, if—

(i) it contains any provision for the direct or indirect re-transfer of the whole or any part of the income or assets to the transferor; or

(ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 63 of the 1961 Act — "Transfer" and "revocable transfer" defined

63. For the purposes of sections 60, 61 and 62 and of this section,— (a) a transfer shall be deemed to be revocable if— (i) 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, or (ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets; (b) "transfer" includes any settlement, trust, covenant, agreement or arrangement.

BLOCK 3 : COMMENTARY

Section 98 is a definitional companion to ss. 96 and 97. The definition of "transfer" — extending to settlement, trust, covenant, agreement, arrangement — is wide enough to capture every conceivable mode by which an income / asset is moved away from one person to another. "Revocable" is defined in two limbs: re-transfer power, or re-assumption power. Both are caught.

The definition is anti-avoidance in nature. Drafting language such as 'the transferor may, in his discretion, recall the trust' or 'the trustee shall, on the transferor's request, deliver up the trust property' clearly falls within sub-clause (b)(i). Less obvious: 'the transferor may appoint himself as trustee at any time'; or 'the transferor may amend the trust deed at any time' — both these likely fall within sub-clause (b)(ii) as a right to re-assume power. McDowell-style colourable structuring is caught.

Practical takeaway. When drafting deeds intended to qualify under the s. 97(2) carve-out, exclude every kind of revocability provision. Use absolute, irrevocable language. Where flexibility is needed for changing beneficiaries (e.g., in a discretionary trust), structure it as a power vested in trustees — not in the settlor.

Section 99 — Income of Spouse / Minor Child / Son's Wife

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Income of individual to include income of spouse, minor child, etc.

99. (1) The total income of any individual, for a tax year, shall include the income arising directly or indirectly,—

(a) to the spouse — (i) by way of remuneration from a concern in which such individual has a substantial interest (carve-out for tech-/professional-knowledge-based income); (ii) from assets transferred without adequate consideration or in connection with agreement to live apart;

(b) to the son's wife from assets transferred on or after 1 June 1973, otherwise than for adequate consideration;

(c) to the minor child of the individual, but excluding income from work / skill / disability;

(d) to any person or AOP from assets transferred otherwise than for adequate consideration, to the extent the income is for the benefit of the spouse or son's wife.

(2) Where the spouse / son's wife invests the transferred asset as capital in a business / partnership, the proportional formula A = B × C/D applies (B = income, C = transferred capital, D = total capital).

(3) Where individual converts personal property into HUF property (without adequate consideration), the income from that property continues to be the individual's; on subsequent partition, the spouse's share's income is treated as transferred indirectly to her under s. 99(1)(a).

(5) Various ancillary rules — substantial-interest definition (20% voting power / profit entitlement); income to be included with the higher-earning spouse; once-included-not-shifted-without-AO-satisfaction; "property" includes interest in property and proceeds of sale; "income" includes loss.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 64 of the 1961 Act — Income of individual to include income of spouse, minor child, etc.

Section 64 — Income of spouse / minor / son's wife / HUF conversion clubbed in individual's hands. Sub-section (1) — six clauses including spouse remuneration, asset transfer to spouse, asset transfer to son's wife, asset transfer for benefit of spouse / son's wife, minor child income, HUF conversion. Sub-section (1A) — minor child clubbing with carve-outs. Sub-section (2) — HUF conversion.

BLOCK 3 : COMMENTARY

Section 99 of the new Act consolidates section 64 of the 1961 Act with all its sub-clauses and provisos. Substantive content is preserved.

Spouse remuneration — sub-section (1)(a)(i). Where the individual has a 'substantial interest' (20% voting power for company / 20% profit-share for non-company) in a concern and the spouse receives remuneration from that concern, the remuneration is clubbed. Carve-out: where the income is solely attributable to technical / professional knowledge / experience / qualification of the spouse, no clubbing. Battu Hanumantha Rao v. CIT (1991) 191 ITR 134 (AP) and CIT v. R. Vasudeva Rao (1993) 199 ITR 437 (Mad.) continue to govern the technical-knowledge carve-out. The carve-out is fact-sensitive — document the spouse's qualifications, separate accreditation, and substantive contribution to the concern.

Spouse asset transfer — sub-section (1)(a)(ii). Income from assets transferred to spouse without adequate consideration is clubbed in the transferor's hands. The transfer must be 'without adequate consideration' — bona fide commercial transactions for full consideration are not caught. Asset substitution / metamorphosis traced through (sub-section (5)(c)): if the spouse sells the transferred asset and re-invests proceeds, the income from the new asset is also clubbed.

Son's wife — sub-section (1)(b). Same rule, but limited to transfers on or after 1 June 1973 (i.e., when this provision was inserted by Taxation Laws (Amendment) Act, 1975). Pre-1973 transfers to daughter-in-law are outside the clubbing net.

Minor child — sub-section (1)(c). All income of minor child is clubbed with the parent who has the higher total income (in case of subsisting marriage) or who maintains the child (otherwise). Three carve-outs: (i) income from work done by the minor; (ii) income from skill / talent / specialised knowledge of the minor; (iii) income of a minor with disability under section 154 (formerly s. 80U). Documentation is critical — document the minor's contribution / disability for the carve-out.

HUF conversion — sub-section (3). When an individual impresses his personal property with HUF character (a 'throwing' under Hindu law), the income from that property continues to be his individual income, even though the property is now owned by the HUF. On subsequent partition, the share allotted to spouse is treated as 'indirectly transferred' to her under s. 99(1)(a)(ii) and clubbing continues. This is a powerful anti-avoidance rule: HUF-conversion is not a tax-shelter for an individual's personal property.

Continuity of jurisprudence. CIT v. P.C. Joshi & R.K. Joshi (1997) 224 ITR 1 (SC) — clubbing applies even where the spouse's income from re-investment of transferred asset; CIT v. Smt. Kalpana Hansraj (2009) 311 ITR 280 (SC) — minor's investment income through guardian: clubbed unless skill/talent/disability carve-out applies. All continue to apply.

Strategic guidance. (i) For HNI families: use parental gifts only after the child attains majority (18 years) — clubbing under s. 99(1)(c) is avoided. (ii) For spouse asset transfers: structure as bona fide commercial transactions with documented consideration. (iii) For HUF planning: do not throw individual property into the common stock — the post-conversion income remains taxable in the individual's hands. Use ancestral property or Hindu-law-acquired property for HUF building.

Section 100 — Liability of Person in respect of Clubbed Income

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Liability of person in respect of income included in income of another person.

100. Where, income of a person, other than the assessee, arising from any asset, or income from membership of a firm, is included in the total income of the assessee under this Chapter or under section 25(a), then, irrespective of anything to the contrary contained in any other law in force,—

(a) such person, in whose name such asset stands, or who is a member of the firm, shall be liable to pay, that portion of the tax levied on the assessee which is attributable to the income so included, upon service of notice of demand by the Assessing Officer in this behalf;

(b) where any such asset is held jointly by more than one person, they shall be jointly and severally liable to pay such tax; and

(c) the provisions of Chapter XIX-D shall apply accordingly.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 65 of the 1961 Act — Liability of person in respect of income included in the income of another person

Section 65 — Where the income of a person other than the assessee is clubbed under sections 60-64 with the assessee's income, the person in whose name the asset stands is liable to pay the proportionate tax on demand by AO; joint and several liability where assets are held jointly. Recovery provisions of Chapter XVII-D applied.

BLOCK 3 : COMMENTARY

Section 100 of the new Act re-states section 65 of the 1961 Act. Clubbing transfers the tax base to the assessee, but s. 100 enables the AO to recover the proportionate tax also from the legal owner of the underlying asset (the spouse, son's wife, minor's guardian etc.). This is a recovery-side mechanism — if the assessee defaults, the AO has a parallel route through the asset-holder.

Joint and several liability — sub-section (b). Where the asset is co-owned, multiple co-owners can be pursued. The recovery is up to the proportionate tax attributable to the clubbed income.

Practical takeaway. (i) For HNI estate planning: even though clubbing aligns the income with the legal originator (spouse/son's wife), the underlying asset's tax exposure persists with the holder. Disclosure in AS 9 / consolidated tax workings should reflect this. (ii) For asset-holding spouses / son's wives / minor guardians: maintain a record of the fact that the asset was received from the original transferor, so that any AO notice can be answered with the chain of title.

Chapter V — At a Glance

Practitioner notes

• Update internal templates for trust deeds, gift deeds, and HUF arrangement memos to ensure conditions of s. 97(2) carve-out are met.
• For HUF planning: avoid impressing individual property with HUF character — the post-conversion income remains the individual's under s. 99(3).
• For minor children: park income only in tax-free instruments (e.g., PPF in minor's name with parent as guardian; sukanya samriddhi yojana for minor girl) — interest is exempt under Schedule II read with section 11; clubbing applies but tax-free anyway.
• For spouse income: leverage the technical/professional knowledge carve-out under s. 99(1)(a)(i) — document spouse's qualifications and substantive contribution.
• Section 100 recovery — ensure asset-holding spouses / son's wives are documented as agents-of-payment for the clubbed tax, not as separate taxpayers.