When a Transfer is Considered Revocable [Section 63]

Section 63 defines what constitutes a revocable transfer for the purposes of Section 61. It clarifies when income from transferred assets will be taxed in the transferor’s hands instead of the transferee’s.

Key Conditions for a Revocable Transfer

A transfer is revocable under Section 63 if:

1.   The Transfer Can Be Reversed (Expressly Revocable)

• The transfer agreement explicitly allowsthe transferor to:
  • Reclaim the asset(take it back).
  • Regain controlover the income.
  • Modify the termsof the transfer.

Example:

• A gifts a property to his son but includes a clause in the deed allowing him to take it back anytime.
• Tax Effect:Rental income is taxable in  A’s hands (not his son’s).

2.  The Transferor Retains Control (Deemed Revocable)

Even if the transfer appears irrevocable, it is still considered revocable if:

• The transferor retains controlover the asset or income.
• The income can be redirected backto the transferor or their spouse.

Examples:

Case 1: Power to Recover Income

• B transfers shares to her daughter but keeps the right to receive dividends.
• Tax Effect:Dividends are taxable in  B’s hands.

Case 2: Asset Can Be Reclaimed Indirectly

• C sets up a trust for his wife but can dissolve it anytime.
• Tax Effect:Trust income is taxable in  C’s hands.

Exceptions (When a Transfer is NOT Revocable)

A transfer is irrevocable (and income is taxed in the transferee’s hands) if:

1. No Right to Reclaim:The transferor cannot take back the asset or income.
2. No Control Over Income:The transferor does not retain any benefit.
3. Irrevocable for a Specified Period (Section 62):
   • The transfer is irrevocable for at least 6 yearsor for the transferee’s lifetime.

Comparison: Revocable vs. Irrevocable Transfer

Key Points :

✔ A transfer is revocable if:

• The transferor can reclaim the asset/income(expressly).
• The transferor retains control(deemed revocable).

✔ Income from revocable transfers is taxed in the transferor’s hands.

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