Section 61

Section 61 — the law in short

What the courts have decided on section 61, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Jyotendrasinhji v S.I. Tripathi Supreme CourtHelps department
  My father's foreign trust can only be unwound if the settlor and the trustee act together. Does that still make it a revocable transfer taxable in his hands?
  Yes. The Supreme Court held that section 63 does not require the power of revocation to be absolute or unconditional. Where a deed lets the settlor, acting together with the trustee, direct payment of the income or corpus to family members, the settlor has a right to reassume power over the income or assets, and the transfer is revocable. The Court also held that where a trust is discretionary the Revenue has an option under section 166 to assess either the trustees or the beneficiaries, though not both on the same income. The appeals were dismissed.
• Provat Kumar Mitter v CIT Supreme CourtHelps department
  I assigned the dividends on my shares to my wife for her life but kept the shares. Is that dividend still my income?
  Yes. The Supreme Court held that the deed of 19 January 1953 was not a transfer of any existing property. The assessee kept the shares and so kept the right to participate in the company's profits; what he made was a contract to make over to his wife, during her life, every dividend that might in future be declared on those shares. The company could pay only the registered shareholder or on his orders, so the income continued to accrue to him and was afterwards paid over under the contract. That is an application of income after it accrues, not a diversion before it accrues.
• UTI Mutual Fund v ITO High CourtHelps taxpayer
  Can they attach your bank account while the stay application is still pending?
  No. Recovery should not be made pending expiry of the appeal period or disposal of the stay application, and for a reasonable period after — so you can approach a higher forum. Reasonable prior notice must also precede withdrawal from an attached account.
• CIT v M.K. Chandrakanth High CourtHelps taxpayer
  My client's trust deed says that if the purpose fails after twenty years the fund reverts to the settlor. Does that clause alone make the trust revocable, so that the income is taxed in the settlor's hands from day one?
  No. A clause that operates only on the failure of the settlement, after a fixed period, does not make the trust revocable while the settlement is running. For the years in which the contingency has not arisen the deed must be read without that clause, and if during the operation of the settlement the settlor can neither enjoy the income nor reassume power over the income or assets, s.63 is not attracted and s.61 does not apply.
• CIT v Mr and Mrs Govind B.C. Ghanekar High CourtHelps departmentNo later treatment found
  The gift deed says nothing about taking anything back, so surely the transfer is irrevocable and ss.61 to 63 cannot apply?
  The deed is not the only place to look. Section 63 enlarges the meaning of 'revocable transfer'; it does not confine it. Where the general law that governs the parties itself allows the transfer to be cancelled at will — there, Article 1181 of the Portuguese Civil Code permitting gifts between spouses to be freely cancelled by the donor — the transfer is revocable within s.61 and the income is chargeable in the transferor's hands.
• CIT v Mridu Hari Dalmia High CourtHelps departmentNo later treatment found
  I did not gift the money — I lent it, interest free, and it is shown as a loan in my books. Does that keep the income out of the clubbing net?
  Not where the supposed borrower cannot contract. A loan is in essence a contract, requiring two parties and an enforceable promise to repay; a minor's contract is void, and a person cannot lend to himself merely because he acts in two capacities. The Delhi High Court therefore held that the money handed over was a transfer of assets, and the interest earned on it was income arising from assets transferred, includible in the transferor's hands.
• Nawal Kishore Chowdhury v ITO High CourtHelps taxpayer
  The department has treated my client's trust as revocable, taxed the income in the settlor's hands, and is now attaching the trust's rents under s.226(3) to recover the settlor's arrears for a string of other years. Can it do that?
  Not on that basis. Section 65 is the only route by which the person in whose name the asset stands can be made to pay, and it permits recovery only on the service of a notice of demand on that person and only of the portion of the tax levied on the assessee which is attributable to the income so included. Where no such notice was served, and where the demand covers years and amounts unrelated to the trust income, s.65 has been breached and the recovery notices are liable to be quashed.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.