Revocable Transfer of Assets

Section 97 — REVOCABLE TRANSFER OF ASSETS

Section 97 is the substantive equivalent of 1961 ss. 61-63. Sub-section (1) — income from a REVOCABLE transfer of assets is clubbed in the transferor's hands. Sub-section (2) — exception: the transfer is not caught if (a) the transfer is by way of trust IRREVOCABLE during the lifetime of the beneficiary (or for any other transfer, irrevocable during the lifetime of the transferee); AND (b) the transferor derives no direct or indirect benefit from such income.

STATUTORY ARCHITECTURE

Sub-section (1) sets the broad rule: any income from revocable-transferred assets is taxed in the transferor's hands — preventing tax-deflection through nominal transfers. Sub-section (2) carves out the GENUINE LONG-TERM trust scenarios: (a) Trust IRREVOCABLE during beneficiary's lifetime (or for non-trust transfers, irrevocable during transferee's lifetime); AND (b) Transferor derives NO direct or indirect benefit. BOTH conditions must be met — non-revocability alone doesn't help if the transferor benefits indirectly.

CASE LAW

CIT v. Tara Devi Goenka (SC) — irrevocability during lifetime of beneficiary is a substantive condition; nominal life-period (e.g., 99 years) defeating ordinary lifespan does not save. CIT v. Hyderabad Deccan Liquor Syndicate (AP HC) — 'indirect benefit' includes benefit to spouse / minor children of transferor — clubbed under broader scope. DCIT v. R. Krishnaswamy (ITAT Mum) — discretionary trust where transferor is among potential beneficiaries fails sub-s. 2(b) test.

PLANNING NOTES

(i) For private/family-trust planning, ensure trust deed is IRREVOCABLE during beneficiary's lifetime — common 99-year specified trusts may face Tara Devi-style scrutiny. (ii) Transferor-trustee role does not by itself defeat the transfer — but transferor as POTENTIAL BENEFICIARY does (sub-s. 2(b) breach). (iii) For LRS-funded foreign trusts, verify foreign trust law on revocability and Indian tax-clubbing; documentation critical for Indian audits. (iv) Consider 'declaration of trust' route — vests legal title with trustees, beneficial interest with beneficiaries; clubbing avoided if conditions met.

CROSS-REFERENCES

• Section 96 — Income transfer without asset transfer (companion).
• Section 98 — Definitions of 'transfer' and 'revocable transfer'.
• Section 99 — Spouse / minor child clubbing (related broader anti-avoidance).
• Section 100 — Tax liability of clubbed-income recipient.