“Transfer” And “Revocable Transfer” Defined. Old Section 63 To New Section 98

Why this section exists

Every clubbing provision in the Income Tax Act depends on one question: did the person actually give up the asset or did they just make it look like they did? The Act deals with situations where someone transfers income or assets to another person. Tax law still wants to tax the original owner.
The Act needs to define two words: "transfer" and "revocable transfer." That job belongs to Section 63 in the Act and Section 98 in the new one. Think of it as the section. It doesn’t
decide when clubbing applies. It decides what counts as a transfer and what makes a transfer revocable in the place. Without this section taxpayers would argue endlessly about whether a particular arrangement was a "transfer" or not. Section 63/98 closes that gap. The numbering has changed. 63 Has become 98. The substance has been carried forward almost word for word. No real change in law here a new address.

What counts as a “transfer”

The definition is deliberately wide. It is not limited to a sale or a registered gift deed. It includes:

• Any settlement
• Any trust
• Any covenant
• Any agreement
• Any arrangement

This wide net exists for a reason. If the definition only covered sale deeds people would route assets through informal family arrangements oral understandings or loosely worded trust structures and then claim they never "transferred" anything.
The law shuts that door: however the arrangement is structured if control or income has moved it counts as a transfer. So even an oral family settlement or a drafted trust deed falls within this definition. The form doesn’t matter. The substance does.

What makes a transfer “revocable”

This is the important half of the section because whether a transfer is revocable decides whether income gets clubbed back to the original owner or not.

A transfer is treated as revocable if either of these two conditions is met:

1. There’s a provision for re-transfer

If the arrangement contains any clause — direct or indirect — allowing the income or the asset (or even a part of it) to come back to the transferor, it’s revocable.
It doesn’t matter whether the re-transfer is immediate or conditional on some future event. The mere presence of that escape hatch is enough.

2. The transferor can re-assume power

Even without an explicit re-transfer clause, if the transferor retains a right — direct or indirect — to take back control over the income or the asset, that also makes it revocable.
This is the “indirect control” limb, and it’s the one that catches most planning attempts. You don’t have to write “I can take this back” anywhere in the document. If the structure leaves you effectively holding the reins, the law treats it the same way.
This is why courts have repeatedly said that revocability isn’t about the label on the document — it’s about who is actually holding control.

A simple example

Suppose Mr. Sharma transfers ?15 lakh to a trust set up for his adult daughter’s benefit. The trust deed includes a clause allowing Mr. Sharma to dissolve the trust and reclaim the funds at any time he chooses.

The trust invests this money and earns ?1.2 lakh as interest during the year.

Who pays tax on that ?1.2 lakh? Mr. Sharma — not the trust, and not his daughter. Because he retained the power to revoke the trust and take the money back, the transfer is revocable under Section 63 (old) / Section 98 (new). Once revocability is established, the income from that asset is clubbed straight back into his total income.

Now change one fact: the trust deed is irrevocable, Mr. Sharma has no right to reclaim the funds under any circumstance, and the trust is set up strictly for his daughter’s lifetime benefit. In that case, the transfer is genuinely irrevocable — and the income is taxed in the trust’s or daughter’s hands, not Mr. Sharma’s.

Same transaction type. Completely different tax outcome. The only thing that changed was whether the transfer was revocable — which is exactly what this section is built to test.

Why this matters in practice

A lot of tax planning within families — gifting to a spouse, setting up a trust for children, transferring rental property to relatives — gets undone at assessment stage because the taxpayer didn’t realise they had retained some indirect control. Common examples worth flagging to clients:

• A father transfers a property to his son but keeps a “right of first refusal” or an option to buy it back — this can be read as retained power.
• A settlor creates a trust but keeps the power to change trustees or investment decisions — courts have held this can amount to indirect control, even without an explicit revocation clause.
• Family settlements drafted casually, with a verbal understanding that “if needed, we’ll reverse this” — this is still a transfer with a re-transfer provision, even though nothing formal was signed.

The takeaway: if a transfer is meant to actually shift the tax liability, it has to be genuinely irrevocable — on paper and in substance. Half-measures don’t work; the law is written specifically to catch them.

Case law that shaped this section

Two rulings are worth knowing, and they still hold relevance under the new Act since the definition itself hasn’t changed:

• CIT vs. P.K. Kochammu Amma (1980) — the Supreme Court held that even indirect control over an asset is enough to make a transfer revocable. No explicit clause is needed; conduct and structure matter.
• Keshavlal Lallubhai Patel vs. CIT (1963) — the term “transfer” was held to cover all kinds of settlements and agreements that shift income, not just formal conveyances.09i

Both rulings reinforce the same principle: the tax department looks past the paperwork to the actual economic reality of who controls the asset.

So has anything actually changed, besides the number?

Mostly no. The core test is word-for-word the same — same broad definition of “transfer,” same two-limb revocability test. But there is one real structural change worth knowing, plus two cosmetic ones.

The real change: old Sections 61 and 62 have been merged

Under the old Act, revocable transfer (Section 61) and the irrevocable-transfer exception (Section 62) were two separate sections. Under the new Act, both have been combined into a single Section 97, split into sub-sections: sub-section (1) covers chargeability on a revocable transfer, sub-section (2) carries the irrevocable exception, and sub-section (3) covers what happens if the power to revoke arises later.

This is why Section 98 (old Section 63) now says it applies “for the purposes of sections 96 and 97” instead of the old wording, “for the purposes of sections 60, 61 and 62.” It isn’t a fresh drafting choice — it’s a direct consequence of 61 and 62 being folded into one section. Practically, this means when you’re explaining the irrevocable-transfer exception to a client, you now cite Section 97(2), not a standalone section.

Cosmetic change 1: the order is flipped

The old Section 63 lists the revocability test first, then the transfer definition. The new Section 98 flips the order — transfer is defined first, then revocability. No legal effect, just presentation.

Cosmetic change 2: numbering style

Old Section 63 used lettered sub-clauses — (a), (i), (ii). New Section 98 uses plain numbers — 1, 2, (a), (b). This isn’t specific to this section; it’s part of the entire new Act dropping alphabetic suffixes everywhere.

Bottom line

Section 98 of the new Act (old Section 63) doesn’t impose tax by itself — it’s the definitions section that makes the clubbing provisions actually enforceable. It tells you two things: transfer is defined broadly to cover almost any arrangement, and revocability is triggered the moment there’s a right to get the asset or income back, directly or indirectly.

For any client doing estate planning, setting up a family trust, or transferring assets to reduce tax exposure, this is the section to test the arrangement against before signing anything. Get this wrong, and the entire tax-saving structure collapses at the first scrutiny assessment.