Revocable Transfer of Assets [Section 61]

Concept:

• Section 61states that if an asset is transferred in a revocable manner, any income from that asset will continue to be taxed in the transferor’s hands (not the transferee’s).
• This prevents taxpayers from reducing their tax liability by temporarily shifting income-generating assets to others while retaining control.

Key Conditions for Revocable Transfer:

A transfer is revocable if:

1. The transfer can be revoked (wholly or partly)by the transferor.
2. The transferor retains controlover the income or asset.

Examples:

• Right to repossess the asset.
• Power to alter beneficiaries.
• Ability to modify terms of the transfer.

Exception:

• If the transfer is irrevocable(cannot be undone), income is taxed in the transferee’s hands (subject to other clubbing provisions).

Examples of Revocable Transfer:

1.   Transfer with Right to Reclaim Property

• X gifts a house to his son but retains the right to take it back anytime.
• Tax Treatment:
  • Rental income from the house will be taxable in Mr. X’s hands, not his son’s.

2.  Trust with Power to Modify Beneficiaries

• Y creates a trust for her daughter but keeps the power to change beneficiaries.
• Tax Treatment:
  • Income from the trust assets will be taxable in Mrs. Y’s hands.

3.  Bank Fixed Deposit in Spouse’s Name with Joint Control

• A deposits money in his wife’s name but retains the right to withdraw it.
• Tax Treatment:
  • Interest income will be clubbed in Mr. A’s income.

Comparison with Section 60 (Transfer of Income Without Asset Transfer)

Key Points:

✅ If a transfer is revocable, income is taxed in the transferor’s hands.

✅ Retaining control or revocation rights triggers Section 61.

✅ Irrevocable transfers are taxed in the transferee’s hands (unless other clubbing rules apply).